Public Relations  >  News Center  >  News Releases  >  December, 2008  >  December 1, 2008  >  Mid-America Leading Economic Indicator Drops to Record Low
Mid-America Leading Economic Indicator Drops to Record Low

Mid-America Leading Economic Indicator Drops to Record Low

November survey results at a glance: 

  • Business conditions index plunges to a second straight record low.
  •  Region loses jobs for the tenth time in the past 11 months.
  • Export orders plummet to a record low.
  • Economic outlook plunges to lowest level ever.

Mid-America Leading Economic Indicator Drops to Record Low: Inflation Gauge Dips below Growth Neutral

The overall index for the Mid-America region, a leading economic indicator for a nine-state area, plunged to a record low in November. The survey, based on a survey of supply managers in the region, also showed job losses for the tenth time in the past 11 months.

The overall index, or Business Conditions Index, slumped to 37.8 from 39.9 in October. An index of 50.0 is considered growth neutral.

“For a second straight month, the index plunged to a record low. These readings are much lower than those recorded before and during the 2001 recession. The regional economy is now in a recession and I expect it to rival the recession of 1981-82 in terms of joblessness and job losses,” Creighton University Economics Professor Ernie Goss said today.

The November employment index slipped to a very weak 39.0 from October’s 47.4. “This is the weakest employment reading that we have recorded since we began the survey in 1994. While both durable and nondurable manufacturing job growth was negative, the heavy or durable goods sector experienced much weaker job conditions for November. I expect regional job losses to mount in the months ahead with rapidly rising unemployment rates for most states,” said Goss.

“Accompanying the economic downturn, has been a significant pullback in the regional prices-paid index. The inflation gauge, which tracks the cost of raw materials and supplies, sank to 49.6, its lowest level since the 2001 recession and down from October’s 61.6 and September’s 84.0. The swift decline in the prices-paid index is a result of weakening regional, national and global economies and a strengthening U.S. dollar. Despite the Federal Reserve’s very aggressive interest rate cuts and increases in the money supply, I expect downturns in oil prices and global economic activity to continue to place downward pressure on inflation at the wholesale level in the months ahead,” said Goss.

“The Federal Reserve’s targeted funds rate is now one percent and equal to the rate set during the last national economic downturn. When the Federal Reserve’s rate-setting committee meets again Dec. 16, I expect it to reduce the funds rate by another quarter percent, or twenty-five basis points to 0.75 percent. However since October 15, the actual or effective funds rate has moved below the target every day. Reducing the target to 75 basis points would simply bring the target in-line with the actual,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Looking ahead six months, economic optimism, captured by the confidence index, slipped to another record low of 22.4 from the October’s previous record low of 22.8. “Despite very forceful action by the U.S. Treasury and the Federal Reserve, the business confidence index has been below 40.0 for all of 2008, reflecting an economic outlook that is at its lowest level since we began the survey in 1994,” said Goss.

Trade numbers remained very weak for November. Until very recently, exports were an important stimulus for the national and regional economies. For a fifth straight month, new export orders declined with the November reading coming in at a new record low of 36.8 from the previous record low of 39.4 in October. For a fourth straight month, imports slumped. Novembers’ import index declined to 38.6, a record low, from 39.9 in October.

“The global economic slowdown is putting significant downward pressure on exports just as the U.S. economic recession is curbing imports,” said Goss.

Other components of November’s Business Conditions Index were new orders at 30.4, down from 32.8 in October; production at 35.4, down from 38.1; inventories at 45.0 down from 47.4; and delivery lead time at 50.2, down from 52.2.

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 a third straight month, the leading economic indicator for Arkansas declined. The November index from a survey of supply managers slumped below growth neutral to 44.0 from October’s 53.3 and September’s 60.7. Components of the overall index for November were new orders at 38.9, production at 42.6, delivery lead time at 46.3, inventories at 69.2, and employment at 38.9. “The state’s unemployment rate has risen by half of a percentage point over the past two months. I expect the seasonally adjusted jobless rate to rise above six percent in first quarter of 2009. Both durable and nondurable manufacturing have been significantly and negatively affected by the slowdown in the national and global economies. Arkansas has lost 3.1 percent of its manufacturing jobs over the past year. I expect Arkansas to continue to lose manufacturing jobs at this pace,” said Goss.

Iowa: For a sixth straight month Iowa’s Business Conditions Index, a leading economic indicator, slumped below growth neutral. The index from a monthly survey of supply managers edged slightly higher to a weak 36.8 from 36.7 in October and 35.7 in September. Components of the overall index for November were new orders at 28.8, production at 34.6, delivery lead time at 54.2, employment at 42.3, and inventories at 29.2. “I expect Iowa’s seasonally adjusted unemployment rate to rise above five percent in the first quarter of 2009. Over the past year, Iowa has lost 1.2 percent of its manufacturing jobs. I expect the pace of manufacturing job losses to quicken somewhat in the months ahead as both durable and nondurable sectors experience pullbacks in growth, especially industries dependent on exports,” said Goss.

Kansas: The Business Conditions Index for Kansas, a leading economic indicator, declined for a second straight month. The November index from a survey of supply managers nose-dived to 32.7 from October’s 50.5 and September’s 58.2. Components of the overall index were new orders at 27.3, production at 18.2, delivery lead time at 45.5, employment at 45.8, and inventories at 40.9. “Due to healthy growth in production of transportation equipment and parts, Kansas has lost only 0.5 percent of its manufacturing jobs over the past year. However with Boeing’s announced layoffs and a pullback in growth among the state’s trading partners, I expect the pace of manufacturing and non-manufacturing job losses to quicken in the months ahead. I expect the seasonally adjusted unemployment rate to top 5.2 percent by February 2009,” said Goss.

Minnesota: For the eighth time in 2008, Minnesota’s Business Conditions Index tumbled below growth neutral. The November index declined to 33.5 from 39.1 in October and 43.4 in September. Components of the overall index for November were new orders at 23.4, production at 29.1, delivery lead time at 52.5, inventories at 48.7, and employment at 32.5. “The state has lost 2.7 percent of its manufacturing jobs over the past year. I expect this direction and pace to continue well into 2009. During the 2001 recession, Minnesota’s unemployment rate rose to only 4.4 percent. I expect the seasonally adjusted jobless rate to rise to 6.5 percent by February 2009,” said Goss.

Missouri: For a second straight month Missouri’s Business Conditions Index plunged below growth neutral. The index slumped to 39.3 from October’s 48.1 and September’s 53.6. Components of the overall index from the November survey were new orders at 33.9, production at 38.7, delivery lead time at 46.1, inventories at 43.4, and employment at 40.9. “Due to its heavy dependence on durable-goods manufacturing, especially vehicle and auto parts production, Missouri has lost 3.6 percent of its manufacturing jobs over the past year. This pace of manufacturing job losses was the highest in the region and one of the highest in the nation. I expect the pace of manufacturing job losses to diminish in the months ahead even as the seasonally adjusted unemployment rate rises to 7.0 percent by February 2009,” said Goss.

Nebraska: For a third consecutive month, Nebraska’s leading economic indicator moved below growth neutral. The November Business Conditions Index plummeted to 33.5 from 45.4 in October and 49.1 in September. Components of the overall index for November were new orders at 28.2, production at 36.4, delivery lead time at 52.3, inventories at 48.0, and employment at 40.4. “Over the past year, Nebraska has lost 1.3 percent of its manufacturing jobs. The global and national economic recessions will quicken this pace of job losses well into 2009. Unlike the national economy which entered a recession in the third quarter of 2008, the final quarter of 2008 will be the first quarter of negative growth for Nebraska’s economy,” said Goss.

North Dakota: North Dakota was the only state in the region with an economic indicator above growth neutral in November. The Business Conditions Index from a survey of supply managers dipped to 55.7 from October’s 61.1 and September’s 63.9. Components of the overall index for November were new orders at 60.0, production at 56.7, delivery lead time at 56.7, employment at 46.7, and inventories at 56.7. “Despite healthy growth for the rest of North Dakota’s economy, manufacturing employment declined 0.8 percent over the past year. However, I expect the state’s economy to grow, albeit at a slow pace, and its seasonally adjusted unemployment rate to remain at 3.4 percent well into 2009,” said Goss.

Oklahoma: The Oklahoma Business Conditions Index advanced from October’s regional low, but remained below growth neutral for November. The index increased to 40.2 from 25.6 in October but was down from 57.1 in September. Components of the overall index for November were new orders at 34.1, production at 36.2, delivery lead time at 48.3, inventories at 42.1, and employment at 40.1. “Oklahoma is one of only two states in the region to expand manufacturing jobs over the past year with a growth of 0.9 percent. However, I expect the state’s manufacturing sector to lose jobs over the course of the final quarter of 2008 and the first quarter of 2009. However, those job losses will be modest as the state’s seasonally adjusted unemployment rate rises to 4.7 percent in the first quarter of 2009. Over the past year, Oklahoma has significantly benefited from high oil and energy prices. The pullback in these prices over the past several months will tend to have a negative impact on the Oklahoma economy in the months ahead,” said Goss.

South Dakota: South Dakota’s Business Conditions Index slumped below growth neutral to 47.9 from October’s 57.3 and September’s 65.8. Components of the overall index for November were new orders at 45.7, production at 50.0, delivery lead time at 60.9, inventories at 34.8, and employment at 45.7. “South Dakota is one of only two states in the region to gain manufacturing jobs over the past year with a 2.6 percent gain. However, due to the pullback in the national economy and the economies of South Dakota’s trading partners, I expect the state’s manufacturing sector to lose jobs, albeit at a slow pace, well into the first quarter of 2009, and the seasonally adjusted unemployment rate to rise to 3.5 percent in the first quarter of 2009,” said Goss.

For historical data and forecasts visit our website at: http://www.creighton.edu/business/economicoutlook/