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Economic Growth In Mid-America Slows With Reduced Inflationary Pressures; Hiring Growth Off As Well

Survey results at a glance:

  • Business Conditions Index declined to its lowest level since April 2003
  • Inflation gauge drops to lowest reading since July 2005
  • October hiring satisfactory, but down for third straight month
  • Lower interest rates and oil prices pushed confidence higher
  • New export orders up as import index declines
  • Survey indicates that Christmas buying season will be good, but not great

Economic Growth In Mid-America Slows With Reduced Inflationary Pressures; Hiring Growth Off As Well

Inflationary pressures in the Mid-America region declined as growth continued to slow, according to the October Business Conditions Survey of supply managers and business leaders in the nine-state region.

The overall Business Conditions Index, a leading economic indicator, declined to 55.1, its lowest level since April 2003 and down from September’s 57.0.

“As growth has slowed inflationary pressures have cooled. The prices-paid index, which tracks the cost of raw materials and supplies, dropped to 73.1, its lowest level since July 2005 and down from September’s 75.2. With growth and inflationary pressures moving lower, I expect the Federal Reserve to make no change in short-term interest rates for the remainder of 2006. In fact, I expect the next move by the Fed will be to reduce short-term rates,” Creighton University Economics Professor Ernie Goss said today.

Consistent with the downturn in the overall index, the October employment reading declined for the fifth consecutive month to 54.2 from September’s 56.5 and August’s 57.0.

“Although the region added jobs for October, businesses are reporting clear and significant pullbacks in growth for new hiring. I expect job growth in the final quarter of 2006 to be about 80 percent of the gains for the second quarter of this year. The downturn in growth will come primarily from the region’s durable goods manufacturing sector,” said Goss, director of the Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Looking ahead six months, supply managers’ economic optimism moved higher as lower oil prices and a halt to rate hikes by the Federal Reserve boosted the confidence index to 55.8 from September’s 51.2 and August’s anemic 47.4. “Comparing this year’s survey results with previous years indicates an upturn in Christmas buying over last year. However, the increase will be modest by historical standards as the economy deals with elevated energy prices and a downturn in the housing sector,” said Goss.

Other components of October’s overall index were new orders at 55.6, relatively unchanged from September’s 55.8, production at 55.7, down from 60.1, inventories down to 56.3 from 57.1, and delivery lead time at 53.3 down from 54.6.

Trade numbers were much improved for October as the new export orders index spiked to 54.9, its highest reading since May of this year. “Importantly, lower oil prices pulled the import index to 53.2, it lowest level since December 2005. Regional and national trade numbers point to an improving U.S. trade position in the months ahead,” said Goss.

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: For the sixth consecutive month, Arkansas’ Business Conditions Index moved lower. The index, a leading economic indicator from a survey of supply managers and business leaders in the state, was relatively unchanged at 52.2 from September’s 52.3, signaling slower growth in the months ahead. Components of the overall index for October were new orders at 50.0, production at 53.3, delivery lead time at 46.7, inventories at 75.0 and employment at 46.8. “Arkansas’ economic growth is likely to slow below the regional and national average through the first quarter of 2007. Slower activity was reported by durable goods manufacturers and foods processors in October,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 1.0 percent.

Iowa: Iowa’s Business Conditions Index from the October survey of supply managers and business leaders slumped to 51.8 from September’s 55.7. Components of the overall index for October were 46.0 for new orders, 54.0 for production, 50.0 for delivery lead time, 58.0 for employment and 54.3 for inventories. “Iowa manufacturing is clearly slowing from the lofty levels recorded earlier in the year. Food processing slowed in October while agriculture machinery manufacturing continues to show solid growth,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 1.1 percent.

Kansas: For the first time since July, the Business Conditions Index for Kansas increased. The leading economic indicator from a survey of supply managers and business leaders rose to a regional high of 65.0, from September’s 58.6. Components of the October overall index were new orders at 59.1, production at 68.2, delivery lead time at 59.1, employment at 68.2, and inventories at 77.3. “While economic growth for the final quarter of 2006 will be below average, growth should once again move higher in the first quarter of 2007 according to our survey results. Food processing and other nondurable manufacturers reported softer economic conditions while durable goods producers detailed an upturn in business activity for the month,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 0.5 percent.

Minnesota: For a second straight month, Minnesota’s Business Conditions Index expanded. The index, a leading economic indicator, climbed to 58.1 from September’s 57.2 and August’s 56.5. Components of the overall index for October were new orders at 61.1, production at 59.6, delivery lead time at 58.3, inventories at 55.7 and employment at 52.8. “I expect Minnesota to add more jobs than any other state in the region for the final quarter of 2006. Durable goods producers, except for vehicle manufacturing, experienced solid growth for October. This growth will continue,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted is 1.9 percent.

Missouri: Missouri’s leading economic indicator for October points to growth into the first quarter of 2007. The Business Conditions Index stood at a healthy 57.7, but down from September’s 58.0. Components of the overall index from the October survey were new orders at 61.5, production at 61.2, delivery lead time at 48.0, inventories at 53.1 and employment at 57.0. “Missouri’s economy began the year like a lion but is ending it more like a lamb. Our survey points to positive but even slower growth into the first quarter of 2007 with the state’s durable goods manufacturing sector experiencing a continuation of negative growth,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 0.8 percent.

Nebraska: Nebraska’s leading economic indicator, the Business Conditions Index, increased slightly for October to 59.6 from September’s 59.5. Components of the overall index for October were 59.5 for new orders, 64.3 for production, 53.6 for delivery lead time, 52.4 for inventories and 61.9 for employment. “Aided by the construction of ethanol plants and ethanol production, non-urban areas of Nebraska continue to grow. Growth will be healthy into the first quarter of 2007 as high agricultural commodity prices assist rural communities that received adequate rainfall. In the urban areas, the transportation sector was a driver of October growth,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 1.0 percent.

North Dakota: For the seventh straight month North Dakota’s Business Conditions Index moved lower. The index, a leading economic indicator from the monthly survey of supply managers and business leaders, slumped to 53.0 from September’s 54.5. Components of the overall index for October were new orders at 50.0, production at 54.2, delivery lead time at 66.7, employment at 50.0 and inventories at 45.0. “The bad news is that our survey and U.S. government data indicate that North Dakota’s economic growth is slowing. The good news is that growth numbers will still be reasonably healthy into the first quarter of 2007. Nondurable manufacturers, including food processing, detailed solid but slower growth over the past several months,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 0.9 percent.

Oklahoma: Oklahoma’s Business Conditions Index from a monthly survey of supply managers and business leaders advanced to 53.2 from September’s 52.8. Components of the overall index for October were new orders at 57.1, production at 42.9, delivery lead time at 64.3, inventories at 71.4 and employment at 42.9. “According to our survey and U.S. government surveys, Oklahoma’s growth has slowed from that achieved earlier in the year and will likely continue to moderate into the first quarter of 2007. Businesses with strong ties to vehicle manufacturing reported downturns in economic activity for October,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 0.5 percent.

South Dakota: South Dakota’s Business Conditions Index shrank to a regional low. The index, a leading economic indicator from a monthly survey of supply managers and business leaders, plummeted to 46.8 from September’s 52.5 and was the lowest reading for the state since January, 2002. Components of the October index were new orders at 38.6, production at 45.5, delivery lead time at 54.5, inventories at 56.8 and employment at 50.0. “I think the move below growth neutral 50.0 will be a one month aberration. However, our survey is clearly pointing to slower growth in the months ahead,” said Goss. Estimated job growth for the fourth quarter of 2006, annualized and seasonally adjusted, is 1.3 percent.

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 11/1/06