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Mid-America Leading Economic Indicator Drops to Record Low

Mid-America Leading Economic Indicator Drops to Record Low

  Ernie Goss interview MP3

October survey results at a glance:

  • Business conditions index plunges to lowest level since the survey began in 1994.
  • Region loses jobs for the ninth time in the past 10 months.
  • Export orders tumbled to record low.
  • Economic outlook plunges to lowest level ever.

Mid-America Leading Economic Indicator Drops to Record Low: Job Losses Continue

The overall index for the Mid-America region, a leading economic indicator for the nine-state area, plunged to a record low in October. The survey, based on a survey of supply managers, also showed job losses for the ninth time in the past 10 months.

The overall index, or Business Conditions Index, plunged to 39.9 from 49.6 in September and 51.4 in August. An index of 50.0 is considered growth neutral. “In the 14 years that we have conducted the monthly survey, October’s was the weakest ever. The regional economy is now in a recession and I expect the downturn to deepen in the months ahead,” Creighton University Economics Professor Ernie Goss said today.

The October employment index advanced to a weak 47.4 from 47.0 in September and down slightly from August’s 47.5. “The regional job market has not been good in 2008. However, with less and less support from exports, and fallout from the national credit crunch, I expect even more job losses and rising unemployment well into 2009. The question is no longer whether we are in a recession, but how long will it last,” said Goss.

“Paralleling 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, plunged to 61.6 from September’s 84.0. This is the lowest prices-paid index that we have recorded in more than three years and reflects the national and global economic downturn and the strengthening dollar. Despite very aggressive increases in the money supply by the Federal Reserve, I expect downturns in oil prices and global economic activity to continue to push inflationary pressures down in the months ahead.”

When the Federal Reserve’s rate-setting committee meets again Dec. 16, I expect it to make no changes to the funds rate. The funds rate target is now one percent and is equal to the rate set during the last national economic downturn. I do expect the Fed to continue its policy of pouring sufficient liquidity into the system to keep actual or effective short- term rates very low through the first half of 2009,” 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, nose-dived to a record low of 22.8 from September’s 38.4 and August’s 50.0. “Except for August, the business confidence index has been below 40.0 all year, reflecting an economic outlook significantly lower than at any time since we began the survey in 1994. It is clear that the national credit crisis and stock market plunge are having what I consider to be an overly pessimistic view of the economy. Surveys over the past several months are pointing to a recession and survey participants are expecting a severe recession with significant job losses,” said Goss.

For the first half of 2008, exports were an important stimulus for the national and regional economies. However, that has changed. For a second straight month, new export orders declined, with the October reading coming in at a record low 39.4 from September’s 50.6. For a second straight month, imports slumped to a record low. October’s import index declined to 39.9 from September’s 43.8.

“Our survey is reflecting two definite areas of concern. First, the pullback in global economic growth is putting downward pressures on new export orders. Second, a slowing Mid-America economy is producing record low levels of imports,” said Goss.

Other components of October’s Business Conditions Index were new orders at 32.8, down from September’s 46.6; production at 38.1, down from 51.5; inventories at 47.4, down from 52.3; and delivery lead time at 52.2, down from 54.3.

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 second straight month, the leading economic indicator for Arkansas declined. The October index from a survey of supply managers plunged to 53.3 from September’s 60.7. Components of the overall index were new orders at 50.0, production at 54.2, delivery lead time at 54.2, inventories at 66.7, and employment at 50.0. “Even though the overall index was above growth neutral for October, I expect the leading economic indicator to fall below 50.0 in the months ahead and the Arkansas unemployment rate to move above 5 percent by the end of the year. There are just too many economic headwinds for the state’s manufacturing sector,” said Goss.

Iowa: Once again, Iowa’s Business Conditions Index, a leading economic indicator, stood at a level pointing to a recession in the state’s economy. The index from a monthly survey of supply managers inched slightly higher to a weak 36.7 from 35.7 in September. Components of the overall index for October were new orders at 27.8, production at 33.3, delivery lead time at 50.0, employment at 44.4, and inventories at 36.0. “Manufacturers in Iowa, both durable and nondurable, reported very weak business conditions for October. Business conditions were especially difficult for firms with connections to the automobile industry. I expect Iowa’s unemployment rate to move above 5 percent in early 2009,” said Goss.

Kansas: For the first time since July, the Kansas Business Conditions Index declined. The October index from a survey of supply managers in Kansas tumbled to 50.5 from 58.2 in September. Components of the overall index were new orders at 50.0, production at 50.1, delivery lead time at 60.0, employment at 40.0, and inventories at 60.0. “Past growth tied to expanding transportation-equipment manufacturers has now clearly slowed. As in past months, weakness was reported among telecommunication firms and food processors in the state. I expect the overall index for Kansas to move below growth neutral in the months ahead with an unemployment rate that tops 5 percent by the end of the year,” said Goss.

Minnesota: For the seventh time in 2008, Minnesota’s Business Conditions Index plunged below growth neutral. The October index from a survey of supply managers declined to 39.1 from 43.4 in September. Components of the overall index for October were new orders at 32.9, production at 39.1, delivery lead time at 52.1, inventories at 50.0, and employment at 37.3. “Minnesota manufacturers, both durable and nondurable, detailed much weaker business conditions for October. I expect Minnesota’s unemployment rate to expand to 6.5 percent in early 2009. Minnesota tends to more closely mirror the national economy than other states in the region, and the U.S. economy has been significantly weaker than that of Mid-America in 2008,” said Goss.

Missouri: Missouri’s Business Conditions Index plunged below growth neutral for October. The index, a leading economic indicator from a survey of supply managers, plummeted to 48.1 from September’s 53.6. Components of the overall index from the October survey were new orders at 47.5, production at 48.7, delivery lead time at 52.7, inventories at 45.0, and employment at 46.4. “Much like Minnesota, Missouri tends to experience more of the ups and downs of the national economy. As in the rest of the U.S., Missouri durable and nondurable manufacturers are reporting very weak business conditions. I expect Missouri’s unemployment rate to move above 7 percent, a regional high, in early 2009,” said Goss.

Nebraska: For a second consecutive month, Nebraska’s leading economic indicator moved below growth neutral. The October Business Conditions Index from a survey of supply managers, dipped to 45.4 from 49.1 in September. Components of the overall index were new orders at 37.3, production at 46.3, delivery lead time at 54.7, inventories at 55.0, and employment at 44.8. “In the past several months, manufacturing in Nebraska has been trending down at a slow pace. Despite this, transportation firms, both rail and trucking, continue to expand at a positive pace. However, the national economic downturn is pulling Nebraska’s economy into negative territory. I expect Nebraska’s unemployment rate to move above 4 percent in early 2009,” said Goss.

North Dakota: North Dakota’s Business Conditions Index slipped to a still healthy 61.1 from 63.9. The index, a leading economic indicator from a survey of supply managers, points to growth for the state’s economy over the months ahead. Components of the overall index for October were new orders at 66.7, production at 66.4, delivery lead time at 54.2, employment at 54.2, and inventories at 54.5. “Firms with connections to the energy sector continue to report healthy growth. The North Dakota economy tends to be somewhat insulated from the national economy. However, weakness in North Dakota durable-goods producers will slow growth for the state in the months ahead. I expect North Dakota’s unemployment rate to stabilize at its current level for the rest of 2008,” said Goss.

Oklahoma: The Oklahoma Business Conditions Index plunged to a regional low and well below growth neutral. The index, a leading economic indicator from a survey of supply managers, crashed to 25.6 from 57.1 in September. Components of the overall index for October were new orders at 16.7, production at 22.2, delivery lead time at 44.4, inventories at 38.9, and employment at 22.2. “Since the end of the 2001 recession, Oklahoma’s employment in mining and natural resources and support industries has expanded by over 80 percent. For the first time since the last recession we are seeing weakness in this sector and related firms. I expect Oklahoma’s unemployment rate to move above 4 percent by the end of 2008,” said Goss.

South Dakota: South Dakota’s Business Conditions Index, a leading economic indicator from a survey of supply managers, slumped to a still healthy 57.3 from 65.8 in September. Components of the overall index for October were new orders at 57.1, production at 65.0, delivery lead time at 57.5, inventories at 47.5, and employment at 52.5. “Manufacturing firms in South Dakota reported healthy business conditions for October. Also, firms with strong ties to energy and agriculture continue to push the state economy forward. Despite the national economic recession, I expect South Dakota’s unemployment rate to stabilize at its current low level for the rest of 2008,” said Goss.

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