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Biofuel Production and Higher Farm Income Push Growth in Mid-America Region above Rest of the Nation

June survey results at a glance:

• Business Conditions Index at second highest level since last August
• Inflation gauge drops for second straight month
• Weak dollar continues to push new export orders
• Pace of job growth expected to increase in months ahead

Biofuel Production and Higher Farm Income Push Growth in Mid-America Region above Rest of the Nation

Inflationary pressures softened for the second straight month as the overall index for the Mid-America region advanced to its highest level since August of last year, according to the June Business Conditions survey of supply managers and business leaders in the nine-state region.

The Business Conditions Index, a leading economic indicator, expanded to 60.0 from May’s 58.3. “Data from the June survey points to healthy growth in the months ahead for the region, but with elevated inflationary pressures at the wholesale level,” Creighton University Economics Professor Ernie Goss said today.

"Growth related to biofuel production, strong farm income, and less fallout from the downturn in the housing market, have meant that growth in the region will continue to outpace that of the nation," said Goss.

The prices-paid index, which tracks the cost of raw materials and supplies, declined for the second time in two months. However, the June reading of 76.2, down from May’s 78.9 and April’s 81.7, continues to indicate significant inflationary pressures at the wholesale level. “Based on our survey and other government data, I do not expect the Federal Reserve Open Market Committee (FOMC) to move on interest rates at its next meeting on Aug. 7. With rising food prices and oil prices once again moving above $70 per barrel, it is clear that inflationary pressures will remain too high for a rate cut, but slowing growth accompanying the downturn in housing will prevent a rate hike,” said Goss.

Looking ahead six months, supply managers’ economic optimism, captured by the confidence index, grew to 55.7 from May’s anemic 51.9. “Despite the June increase, higher energy and food prices continue to restrain confidence among supply managers,” said Goss.

The June employment index declined slightly to 59.0 from May’s 59.8. “For the first half of 2007, job growth in the Mid-American region has exceeded national employment growth by three-tenths of a percent. I expect this gap to widen slightly in the second half of 2007,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Trade numbers remained strong for June. New export orders advanced slightly to a healthy 60.0 from May’s 59.3. Imports slumped to a still brisk 60.4 from May’s 62.1. “The weak dollar, especially against the Euro, has pushed exports higher. At the same time, imports from Asia along with high oil prices have elevated imports,” said Goss.

Other components of June’s Business Conditions Index were new orders at 63.7, up from May’s 59.8; production at 64.0, up from 61.1; inventories at 52.9, down from 57.3; and delivery lead time at 51.9, down from 52.4.

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.

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