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Economic Indicator for Mid-America Region Looking Up as Confidence Soars; Inflationary Pressures on the Decline

Survey results at a glance:

• Business Conditions Index advances to its highest level since July 2006
• Inflation gauge drops to its lowest level since July 2005
• New export orders rise to highest level since May 2006
• Cooling inflation and stable interest rates propel confidence higher

Economic Indicator for Mid-America Region Looking Up as Confidence Soars; Inflationary Pressures on the Decline

Inflationary pressures cooled and economic growth advanced in the Mid-America region according to the January Business Conditions Survey of supply managers and business leaders in the nine-state region.

The overall Business Conditions Index, a leading economic indicator, rose to its highest level since July 2006, climbing to 57.6 from December’s 53.0. At the same time, inflationary pressures cooled for the sixth straight month, moving the prices-paid index to its lowest level since July 2005. The prices-paid index, which tracks the cost of raw materials and supplies, dropped to 67.8 from 68.3 in December and 69.4 in November.

“January survey results were very good for the nine-state region with economic activity and optimism related to renewable energy contributing to the January expansion. Given our numbers and the latest government data, I expect the Federal Reserve to make no interest-rate changes in the near future as the downturn in housing and oil prices below $60 per barrel restrain inflationary pressures. However, a large rebound in oil prices would likely push the Fed to raise rates,” Creighton University Economics Professor Ernie Goss said today.

Survey participants also reported healthy new hiring for the month. The January employment index expanded for a second consecutive month to 54.6 from December’s 53.1 and November’s tepid 50.5. “After weak but positive job growth in the fourth quarter, I expect new hiring to expand at a fairly modest pace in the region for the near term. However, job growth will be especially strong for the non-urban areas with ties to the farm economy or biofuels production,” said Goss.

The increase in growth from December to January was much stronger for the heavy manufacturing sector. “However, nondurable-goods manufacturing and value-added service also recorded healthy business activity for January with positive but somewhat tepid job growth,” said Goss.

Looking ahead six months, supply managers’ economic optimism soared to 61.4 from December’s weak 47.3. “It is clear the Fed halting interest rate increases combined with oil prices below $60 per barrel and moderating inflationary pressures, have supported a more positive economic outlook among supply managers. Furthermore, many non-urban areas of the region are benefiting from construction and operations of biofuel facilities,” said Goss, director of the Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Trade numbers improved dramatically for January. New export orders climbed to 56.1 from December’s subdued 51.3 while imports declined to 55.0 from December’s all ready strong 57.9. “Declining oil prices helped push the import index lower and at the same time, an upturn in new durable goods orders from some of the nation’s chief trading partners pushed the export number higher,” said Goss.

Other components of January’s overall index were new orders at 61.4, up from December’s 54.0; production at 60.3, up from 52.7; inventories at 52.5, down from 55.9; and delivery lead time at 52.6, up from 49.5.

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 rose to its highest level since October of last year, increasing to 51.0 from December’s regional low of 33.6 and November’s weak 41.5. Components of the overall index for January were new orders 55.0, production at 45.0, delivery lead time at 55.1, inventories at 45.1 and employment at 45.2. “Both durable- and nondurable-goods manufacturers in Arkansas continue to shed jobs. Pullbacks were also noted for food processors in the state. On the other hand, the state’s information industry recorded positive gains for January,” said Goss.

Iowa: For the first time since September, Iowa’s Business Conditions Index advanced. The leading economic indicator from a monthly survey of supply managers and business leaders climbed to 49.0 from December’s 40.4 and November’s 42.0. Components of the overall index for January were 50.0 for new orders, 50.2 for production, 40.5 for delivery lead time, 52.2 for employment and 50.1 for inventories. “January growth was especially strong for durable-goods manufacturers and insurance carriers with nondurable goods producers, including food processors, recording positive but weaker results. On the other hand, truck transportation and information firms detailed pullbacks for January,” said Goss.

Kansas: The Business Conditions Index for Kansas plummeted to its lowest level since September 2002, declining to 42.5 from December’s 47.5 and November’s healthier 59.4. Components of the January overall index were new orders at 37.5, production at 37.8, delivery lead time at 45.8, employment at 50.0 and inventories at 50.4. “Both our data and U.S. government data have detailed slow to no growth in the Kansas economy over the past six months. However pullbacks were isolated to the more rural portions of the state and to trucking firms, telecommunication firms and nondurable goods manufacturers including food processors. Firms with ties to expanding aircraft manufacturing have reported very healthy results. Boeing’s strong results announced yesterday are symbolic of this growth,” said Goss.

Minnesota: For the third consecutive month, Minnesota’s Business Conditions Index declined, dropping to 50.5 from December’s 51.7 and November’s 55.5. Components of the overall index for January were new orders at 49.1, production at 49.3, delivery lead time at 57.1, inventories at 57.9, and employment at 45.5. “A lot of the recent softer economic numbers from Minnesota were the result of downturns in several industries including food processors, telecommunication firms, and firms with ties to transportation equipment manufacturing. On the other hand, growth has been healthy for trucking, insurance and nondurable manufacturers, except food processing,” said Goss.

Missouri: For the third consecutive month, Missouri’s Business Conditions Index increased. The index, a leading economic indicator of a survey of supply managers and business leaders in the state expanded to 63.7 from 62.6 in December and 59.1 in November. Components of the overall index from the January survey were new orders at 74.1, production at 69.2, delivery lead time at 43.4, inventories at 54.6 and employment at 60.9. “Growth across industries in Missouri varied widely with firms tied to vehicle manufacturing continuing to report weakness and telecommunications companies detailing pullbacks. On the other hand, nondurable goods producers, except food processors, reported strong results for the month,” said Goss.

Nebraska: For the second straight month, Nebraska’s Business Conditions Index moved lower to a still healthy 56.6 from December’s 60.5 and November’s 63.1. Components of the overall index for January were 56.1 for new orders, 57.3 for production, 56.1 for delivery lead time, 51.2 for inventories and 59.8 for employment. “Several firms reported that January ice storms slowed January economic activity. On the other hand, Nebraska has benefited significantly from the construction and operation of ethanol facilities. This has increased agriculture commodity prices, pushing the income of grain producers higher as it has increased input costs up for livestock operators. These factors have contributed to upturns recorded in our surveys over the past 6 months. However, pullbacks in information companies and firms tied to transportation equipment manufacturers have restrained growth in the state,” said Goss.

North Dakota: For a third consecutive month, North Dakota’s Business Conditions Index moved higher. The leading economic indicator from a monthly survey of supply managers and business leaders rose to a regional high 68.1 from December’s 66.3 and November’s healthy 56.4. Components of the overall index for January were new orders at 70.8, production at 75.0, delivery lead time at 70.9, employment at 58.3 and inventories at 58.3. “According to our survey and U.S. government data, North Dakota’s economy continues to out-perform the rest of the region. However, recent downturns in trucking and in durable-goods manufacturing have me concerned that this strength will diminish in 2007. Food processors in the state reported strong growth for the month,” said Goss.

Oklahoma: Oklahoma’s Business Conditions Index declined for a second consecutive month but remained above growth neutral for January. The leading economic indicator dropped to 50.4 from December’s 54.8 and November’s 58.8. Components of the overall index for January were new orders at 50.0, production at 58.3, delivery lead time at 33.3, inventories at 58.6 and employment at 50.3. “Firms with ties to vehicle manufacturing and air transportation continue to report weakness. On the other hand, nondurable goods manufacturers, including food processors, detailed solid growth for the month,” said Goss.

South Dakota: January’s Business Conditions Index for South Dakota advanced into a healthy range. The index, a leading economic indicator from a survey of supply managers and business leaders, expanded to 54.7 from December’s 47.5. Components of the January index were new orders at 59.4, production at 56.3, delivery lead time at 50.0, inventories at 46.9 and employment at 53.1. “As a signal of an expanding economy, truckers in South Dakota continue to report very strong results with durable-goods producers detailing improving business activity. Nondurable goods manufacturers, except for food processors, were also bullish about current and future economic activity,” 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 2/1/07