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September Survey Shows Lower Inflationary Pressures and Solid Growth for Mid-America Economy

September Survey Shows Lower Inflationary Pressures And Solid Growth For Mid-America Economy

Survey results at a glance:

  •  Business Conditions Index up, pointing to solid growth for rest of 2006
  • Inflation gauge drops to lowest level since February 2006
  •  September hiring healthy but down for second straight month
  • Confidence weak but up slightly from August * New export orders weak

September Survey Shows Lower Inflationary Pressures And Solid Growth For Mid-America Economy
Growth in the Mid-America region continued for September as inflationary pressures diminished, according to a monthly survey of supply managers and business leaders in a nine-state region.

The overall Business Conditions Index rose slightly to 57.0 from August’s 56.3, marking 48 consecutive months that the index has been above growth neutral 50.0. “Despite the slight rise in the index, our leading economic indicator has been pointing to slower but positive growth for the final quarter of 2006 as higher short-term interest rates and energy prices restrain growth,” Creighton University Economics Professor Ernie Goss said today.

The prices-paid index, which measures inflation at the wholesale level, while still showing significant inflationary pressures, declined to its lowest level since February of this year to 75.2, down from August’s 80.2.

“Supply managers reported that recent declines in oil prices have reduced inflationary pressures. I expect this downward trend to push the Federal Reserve Open Market Committee (FOMC) to hold on interest rate hikes at its next meeting on October 24-25. At this time, I place the likelihood of an October rate hike at less than 10 percent,” said Goss, the Jack A. MacAllister Chair in Regional Economics and director of the Creighton Economic Forecasting Group.

The Mid-America September employment reading declined to a still healthy 56.5 from August’s 57.0. “We are definitely charting slower hiring in the region. I expect reduced hiring in the fourth quarter as the downturn in the construction industry negatively affects more and more firms in the region. However, our survey points to an annualized job growth of 1.5 percent, which is still healthy,” said Goss.

Higher short-term interest rates, oil prices above $60 per barrel and downturns in construction have damaged confidence among supply managers. The confidence index, which tracks survey participants’ economic outlook six months down the road, rose slightly to a still anemic 51.2 from August’s downright bearish 47.4. According to one Minnesota nondurable goods manufacturer, “The cost of energy and health care are killing our company and our country.”

Other components of September’s overall index were: new orders at 55.8, up from August’s 53.1; production at 60.1, up from 59.9; inventories at 57.1, down from 63.1; and delivery lead time at 54.6, up from 51.3.

September’s trade numbers, much like August’s, were less than rosy. While new export orders expanded, they stood at a weak 50.6, but up from August’s three year low of 49.9. At the same time, imports were a strong 55.1, but down from August’s reading of 57.0. “These numbers are certainly not encouraging and will tend to slow growth in the months ahead as imports displace domestic purchases. Furthermore, we have yet to detect any positive impact from the Japanese lifting the embargo on the importation of U.S. beef,” 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: The Business Conditions Index for Arkansas declined for the fifth straight month, signaling slower growth in the months ahead. The index, a leading economic indicator from a survey of supply managers and business leaders in the state, declined to 52.3 from August’s 58.8 and July’s 66.7. Components of the overall index for September were new orders at 50.0, production at 53.1, delivery lead time at 53.2, inventories at 66.7 and employment at 46.9. “Food processors in the state reported improving business conditions. Durable and non-durables outside of food processing reported pullbacks in hiring. Truckers reported solid growth for September,” said Goss.

Iowa: The Business Conditions Index from the September survey of Iowa supply managers rose to 55.7 from August’s 53.0. Components of the overall index for September were 53.7 for new orders, 59.3 for production, 48.0 for delivery lead time, 57.7 for employment and 60.0 for inventories. “Several Iowa durable-goods manufacturers reported that the rate hikes by the Fed are having a significant negative impact on business. However, overall, Iowa manufacturing continues to add jobs despite cutbacks announced by several large producers. Meat packers detailed slower activity for September,” said Goss.

Kansas: For the second straight month, the Business Conditions Index for Kansas declined. The leading economic indicator from a survey of supply managers and business leaders in the state decreased to 58.6 from August’s 68.2. Components of the September overall index were new orders at 50.0, production at 66.7, delivery lead time at 46.2, employment at 65.4, and inventories at 69.2. “Transportation equipment and parts manufacturers reported strong growth for the month with solid new hiring and rising hours worked. Meat-packing firms also detailed solid upturns for September,” said Goss.

Minnesota: After three straight declines, Minnesota’s Business Conditions Index advanced. The index, a leading economic indicator from a survey of supply managers and business leaders, increased to 57.2 from August’s 56.5. Components of the overall index for September were new orders at 57.8, production at 60.4, delivery lead time at 52.9, inventories at 66.0 and employment at 51.0. “While growth was healthy for September, it is clearly down from earlier in the year. Cutbacks in automobile production are spilling over into other sectors of Minnesota’s economy. However, outside of automobiles, durable-goods manufacturers reported business expansions for September,” said Goss.

Missouri: For the third consecutive month, Missouri’s Business Conditions Index grew. The index, a leading economic indicator from the monthly survey of supply managers and business leaders, advanced to 58.0 from August’s 57.2 and July’s 56.4. Components of the overall index from the September survey were new orders at 62.0, production at 63.0, delivery lead time at 48.1, inventories at 51.0 and employment at 56.6. “While Missouri’s vehicle-manufacturing industry suffers, truckers report that an expanding economy pushed their business higher. Weakness in telecommunications was offset by advances in software- design and system-design firms,” said Goss.

Nebraska: For the fourth time in the past five months, Nebraska’s Business Conditions Index declined. Despite the downturn, September’s index stood at a strong 59.5, down from August’s 61.6 and July’s 60.3. The index points to healthy but slowing economic growth for the final quarter of 2006. Components of the overall index for September were 54.5 for new orders, 63.3 for production, 56.7 for delivery lead time, 56.8 for inventories and 65.6 for employment. “Despite the lack of any positive impact from Japan opening their economy to U.S. beef, Nebraska food processors reported upturns in September business activity. Growth in the trucking industry more than offset a weaker information industry,” said Goss.

North Dakota: For the sixth 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, declined slightly to 54.3 from August’s 54.5 and July’s 57.0. Components of the overall index for September were new orders at 42.3, production at 57.7, delivery lead time at 73.1, employment at 53.8 and inventories at 55.0. “Our survey points to a North Dakota economy that is clearly slowing. Even so, truckers indicated expansions in activity as both durable and nondurable producers reported downturns for September from August levels. Growth also slowed for North Dakota’s natural resources and mining industry,” said Goss.

Oklahoma: Oklahoma’s leading economic indicator from a monthly survey of supply managers and business leaders plunged to 52.8 from August’s vigorous 64.6 and July’s 57.0. Components of the overall index for September were new orders at 50.0, production at 43.8, delivery lead time at 62.5, inventories at 75.0 and employment at 50.1. “The state’s durable-goods manufacturers reported solid growth for September, while nondurable producers, outside of food processing, indicated that business activity slowed from August levels,” said Goss.

South Dakota: The Business Conditions Index for South Dakota plunged to its lowest level since August 2002. The index, a leading economic indicator from a monthly survey of supply managers and business leaders, slumped to 52.5, still above growth neutral 50.0 but down from August’s 58.3. Components of the September index were new orders at 45.2, production at 54.8, delivery lead time at 52.4, inventories at 59.5 and employment at 57.1. “After growing at an unsustainable pace for much of 2006, surveys over the past several months point to a state economy that will grow at a pace much like the rest of the region for the final quarter of 2006. Nondurable manufacturers, especially food processors, reported solid growth for September as durable-goods producers detailed slower business activity for the month,” said Goss.

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 10/2/06