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Confidence Up But So Are Inflationary Pressures In Mid-America Economy For April

Confidence Up But So Are Inflationary Pressures In Mid-America Economy For April

The Business Conditions Index for the Mid-America region points to brisk growth in the months ahead, but with potentially higher inflationary pressures, according to the monthly survey of supply managers and business leaders in the nine-state region.

The overall index for April advanced to 66.0, its highest level since June 2004 and up from March’s 63.6 and February’s 59.9.

“Even with the Fed’s foot on the brakes, and rapidly rising energy prices, the regional economy continues to expand at a breakneck pace. Not surprisingly, we are recording some pass through of higher energy prices with transportation firms adding surcharges that are showing up in supply prices,” Creighton University Economics Professor Ernie Goss said today.

The prices-paid index for April rose for the second straight month to 79.1 from March’s 78.6 and February’s 74.3. “Last week Fed chief Bernanke issued a more positive short-term interest rate outlook. Given the budding inflation that we are seeing in our survey and in other regional and national data, I expect the Fed to continue to raise rates in the months ahead. I place the likelihood of Federal Reserve rate increases at 99 percent at its May meeting and more than 70 percent likely at its June meeting. The higher short and long term interest rates have failed to slow even construction in the region as individuals and businesses undertake projects in anticipation of even higher rates in the months ahead,” said Goss.

“The regional employment index climbed to 64.5, its highest level since June 2004, and up from March’s 58.5 and February’s 58.4. I expect U.S. Bureau of Labor Statistics employment data that will be issued on May 5, to validate our data showing a robust labor market. This growth will put further pressure on the Fed to raise short-term interest rates beyond those currently anticipated by the market. The nine-state region added 73,200 jobs, for an annualized rate of 2.3 percent, in the first quarter of this year.

Higher interest rates, advancing energy prices and softer farm income will begin to slow growth in the third quarter of this year,” said Goss. Higher interest rates and record oil prices did not diminish business confidence as the index increased to 63.7 from March’s 60.4. The confidence index gauges survey participants’ economic outlook for the next six months. An index below 50.0 indicates a negative outlook.

“Much like national consumer confidence, our regional confidence numbers fly in the face of expectations. I expect higher commodity prices and escalating short and long-term interest rates to push regional growth down significantly in the second half of 2006,” said Goss, the Jack A. MacAllister Chair in Regional Economics and director of the Creighton Economic Forecasting Group.

A solid upturn in new export orders to 59.2 from March’s 56.6 and February’s 52.0 was another bright spot in the April report. “Imports advanced to 61.0 from March’s reading of 60.4. An expanding global economy is aiding export orders while higher commodity prices have pushed the import reading to high levels,” said Goss.

Other factors driving the overall index higher for April were: new orders at 69.0, up from 68.5, production at 69.8, down from 69.9, and inventories at 60.8, up from 56.9. The April delivery lead time index stood at 59.0, its highest level since September 2004. A delivery lead time index above 50.0 indicates potential shipping and delivery delays and usually precedes upward pressures on prices in the near term.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The Institute for Supply Management, formerly the Purchasing Management Association, began to formally survey its membership in 1931 to gauge business conditions. The Creighton Economic Forecasting Group uses the same methodology as the national survey.

The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

Arkansas: Expansions in business services offset softer conditions in manufacturing to push Arkansas’ business conditions into pre-2000 growth ranges. According to the April survey of supply managers and business leaders, the overall index, a leading economic indicator, rose to a record 78.6 from March’s 71.0 and February’s healthy 69.9. Components of the overall index for the month were: new orders at 84.6, production at 88.5, delivery lead time at 57.7, inventories at 70.8 and employment at 76.9. “Arkansas added 6,600 jobs in the first quarter for an annualized rate of 2.2 percent. Based on our survey, I expect the state to gain over 7,000 jobs in the second quarter before higher interest rates and mounting energy prices begin to slow growth,” said Goss. Gaining industry: business services; waning industry: food processing.

Iowa: Iowa’s manufacturing sector expanded in April at a pace significantly above that of the region and nation. The overall index, a leading economic indicator from a survey of supply managers and business leaders, advanced to a healthy 59.6 from March’s 58.0, but down from February’s 61.5. Components of the overall index for April were: 65.2 for new orders, 60.9 for production, 50.0 for delivery lead time, 54.3 for employment and 64.3 for inventories. “Iowa added 8,000 jobs in the first quarter for an annualized rate of 2.2 percent. Based on our survey, I expect the state to gain over 7,300 jobs in the second quarter before higher interest rates, escalating energy prices and softer farm income begin to slow growth,” said Goss. Gaining industry: durable goods manufacturing; waning industry: information.

Kansas: For the second straight month the business conditions index for Kansas advanced. The index, a leading economic indicator, increased sharply to 62.0 from March’s 51.9 and February’s 50.2. Components of April’s index were: new orders at 63.6, production at 72.7, delivery lead time at 40.9, employment at 63.6 and inventories at 59.1. “Kansas added 7,600 jobs in the first quarter for an annualized rate of 2.3 percent. Based on our survey, I expect the state to gain over 6,000 jobs in the second quarter before higher interest rates and rapidly rising energy prices begin to slow growth,” said Goss. Gaining industry: durable good manufacturing; waning industry: food processing.

Minnesota: Minnesota’s business conditions rose for the fifth straight month. The index, a leading economic indicator from a survey of supply managers and business leaders, climbed to 68.7 from March’s 60.9 and February’s robust 59.6. Components of the overall index for April were: new orders at 73.0, production at 79.0, delivery lead time at 55.9, inventories at 56.9 and employment at 64.6. “Minnesota added 10,200 jobs in the first quarter for an annualized rate of 1.5 percent. Based on our survey, I expect the state to gain over 8,000 jobs in the second quarter before higher interest rates, escalating energy prices and spillovers from the troubled auto industry begin to slow growth,” said Goss. Gaining industry: durable goods manufacturing outside automobile production; waning industry: telecommunications.

Missouri: For the fourth consecutive month, Missouri’s business conditions index from the monthly survey of supply managers and business leaders moved higher. The index increased slightly to 57.2 from March’s 57.0 and February’s 56.2. Components of the overall index from the April survey were: new orders at 59.1, production at 59.2, delivery lead time at 57.1, inventories at 55.9 and employment at 52.7. “Missouri added 16,300 jobs in the first quarter for an annualized rate of 2.4 percent. Based on our survey, I expect Missouri to gain over 10,000 jobs in the second quarter before higher interest rates and escalating energy prices begin to slow growth even more,” said Goss. Gaining industry: business services; waning industry: motor vehicle manufacturing.

Nebraska: Nebraska’s business conditions index soared to its highest level since July of last year. The index, a leading economic indicator, climbed to 65.9 from March’s 63.5 and February’s strong 59.8. April readings for components of the overall index were: 72.9 for new orders, 71.3 for production, 52.1 for delivery lead time, 56.4 for inventories and 63.5 for employment. “Nebraska added 7,900 jobs in the first quarter for an annualized rate of 3.4 percent. Based on our survey, I expect the state to gain over 7,000 jobs in the second quarter before higher interest rates, escalating energy prices and softer farm income begin to slow growth,” said Goss. Gaining industry: rail transport; waning industry: information.

North Dakota: The business conditions index from the monthly survey of supply managers and business leaders in North Dakota declined to 67.7 from March’s 69.9, but was up from February’s 61.0. The index increased to its highest level since March of last year. Components of the overall index for April were: new orders at 70.6, production at 67.6, delivery lead time at 67.4, employment at 67.9 and inventories at 59.4. “North Dakota added 1,400 jobs in the first quarter for an annualized rate of 1.6 percent. Based on our survey, I expect the state to gain approximately 1,000 jobs in the second quarter before higher interest rates and softer farm income slow growth to an even lower level,” said Goss. Gaining industry: business services; waning industry: food processing.

Oklahoma: Oklahoma’s business conditions index, from the monthly survey of supply managers and business leaders, rose briskly for April. The index, a leading economic indicator, soared to a regional high of 81.9 from March’s 60.0 and February’s healthy 55.9. Component readings for April were: new orders at 75.0, production at 87.5, delivery lead time at 98.3, inventories at 75.2 and employment at 75.0. “Oklahoma added 10,100 jobs in the first quarter for an annualized rate of 2.6 percent as an expanding energy sector aided Oklahoma’s economy. Based on our survey, I expect the state to gain over 12,000 jobs in the second quarter before higher interest rates begin to moderate growth,” said Goss. Gaining industry: truck transportation; waning industry: transportation equipment manufacturing.

South Dakota: The business conditions index for South Dakota declined to a still robust 64.5 from March’s 67.4 and February’s 69.9. Components of the April index were: new orders at 68.4, production at 68.1, delivery lead time at 63.2, inventories at 57.6 and employment at 57.9. “South Dakota added 5,100 jobs in the first quarter for an annualized rate of 5.2 percent. Based on our survey, I expect the state to gain less than 5,000 jobs in the second quarter before higher interest rates and escalating energy prices begin to slow growth,” said Goss. Gaining industry: information; waning industry: food processing.

For historical data and forecasts visit www.outlook-economic.com or www.erniegoss.com

For ongoing commentary on recent economic developments, visit the blog at www.economictrends.blogspot.com.

Posted 5/1/06