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Mid-America Leading Economic Indicator Rebounds for September

September survey results at a glance:

  •  Business conditions index rose for first time in three months.
  • Job creation improved for the month.
  •  Business confidence remained weak.
  •  New export orders posted large gain.

Mid-America Leading Economic Indicator Rebounds for September; Business Confidence Fails to Recover

Inflationary pressures at the wholesale level dipped for the fourth time in the past five months as the overall index for the Mid-America region rebounded, according to the September Business Conditions survey of supply managers and business leaders in the nine-state region.

The Business Conditions Index, a leading economic indicator, advanced to 56.7 from August’s 56.0. “After declining for two straight months, the overall index moved up pointing to growth for the final quarter of the year. Even so, I still expect the expansion in the final quarter to be below even the tepid growth recorded in the third quarter that just ended,” Creighton University Economics Professor Ernie Goss said today.

"Very strong farm income, ethanol production, and less fallout from the downturn in housing will produce a much more favorable economic environment for the region compared to the rest of the nation," said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

The prices-paid index, which tracks the cost of raw materials and supplies, declined to 71.6 from August’s 71.7. Over the past several months the index has indicated waning, but still elevated inflationary pressures at the wholesale level.

“While the futures market has priced in a 90 percent chance of a rate cut at the October meeting of the Federal Reserve’s Open Market Committee, I still think there is room for the Fed to hold off on reducing short-term interest rates. Inflationary pressure recorded in our survey and other surveys are too high for another rate cut unless it becomes clear that the economy is headed into a recession. The September employment report that will be released this Friday, will be the prime factor dictating the Fed’s interest rate action. Job losses for both August and September will guarantee an October rate cut. However, job gains for September above 100,000 and a significant upward revision in August jobs will likely mean no rate change, ” said Goss.

Looking ahead six months, supply managers’ economic optimism, captured by the confidence index, was almost unchanged at 51.8, up slightly from 51.7 in August, but still low by historical standards.

“Despite reports of healthy growth for September, the continuing difficulties in the housing sector and the mortgage industry have weakened survey participants’ economic outlook. The September reading is driven more by concerns related to the national economy rather than issues associated with the regional economy,” said Goss.

The September employment index of 53.7, while below the 56.5 recorded for September 2006, is up from August’s 50.0 and points to positive, but weaker job growth for the final quarter of this year. “The two largest state economies in the region, Minnesota and Missouri, continue to pull overall regional job creation well below the historical average. I expect this trend to continue through the final quarter of the year with job growth positive, but anemic,” said Goss.

Trade numbers strengthened for September. New export orders advanced to 56.6 from August’s 51.6. Imports rose to 60.5 from 56.9 in August. The weak dollar, especially against the Euro and the Canadian dollar, is making U.S. goods cheaper abroad and aiding exports. At the same time, imports from Asia, along with high oil prices, have kept imports significantly above growth neutral.

Other components of the month’s Business Conditions Index were new orders at 59.9, up from August’s 58.3; production at 59.3, almost unchanged from 59.4; inventories at 50.6, down from 55.4; and delivery lead time at 54.3, up from 53.8.

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.

View the complete report at: www.creighton.edu/business/economicoutlook/

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