Mid-America Business Conditions Index
September survey results at a glance:
- Business conditions index again dips below growth neutral.
- Region loses jobs for the eighth time in the past nine months.
- Economic confidence is crushed.
- Trade numbers show significant weakness.
Mid-America Leading Economic Indicator Slips Below Growth Neutral: Job Losses Mount
For the sixth straight month, the Mid-America survey showed job losses as the region’s Business Conditions Index slumped below growth neutral, according to the September survey of supply managers in the nine-state region.
The Business Conditions Index, a leading economic indicator, dipped to 49.6 from August’s already weak 51.4. “While the regional economy has been losing jobs for most of 2008, the economy, as measured by Gross Domestic Product (GDP), has been treading water. I expect regional GDP growth for the final quarter of 2008 to be negative. There is no way that this part of the country can continue to avoid the fallout from the national housing downturn and related mortgage issues. Banks in this part of the country, while not engaging in the reckless activity seen elsewhere in the country, will bear some of the costs in the months ahead,” Creighton University Economics Professor Ernie Goss said today.
The September employment index declined to a weak 47.0 from 47.5 in August and 41.4 in July. “The regional job market has not been good for 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 for the final quarter of 2008, but with significant variation across the nine states,” said Goss.
“For a second straight month, the prices-paid index, which tracks the cost of raw materials and supplies, dropped with a September reading of 84.0, down from August’s 86.7, and July’s record high 93.9. While declines in commodity-price growth have been helpful, supply managers continue to report price growth that is significantly above acceptable levels. However, I expect downturns in oil prices and global economic activity to continue to push inflationary pressures down to more acceptable levels,” said Goss.
When the Federal Reserve’s rate-setting committee meets again Oct. 28-29, it cannot reduce the target funds rate,(the key rate between U.S. banks), due to the inflationary pressures in the pipeline detected in regional and national surveys of supply managers. Nor can it increase rates for fear of damaging an already weak economy. Due to excessive inflation in the pipeline and a global economic slowdown, I don’t expect a cut in the ‘target’ funds rate until well into 2009. 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 final quarter of 2008,” said Goss.
Looking ahead six months, economic optimism, captured by the confidence index, nose dived to 38.4 from 50.0 in August. “Every month for 2008, except for August, the business confidence index has plunged below 40.0, reflecting an economic outlook significantly lower than at any time since we began this survey in 1994. While I don’t expect the economy to be as weak as survey participants do, it is clear that we are entering a period of unhealthy economic growth, combined with job losses and elevated inflation – clearly not a good combination,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
After expanding briskly for seven straight months, new export orders softened considerably for September while imports declined to their lowest level on record.. “Our survey is reflecting two definite areas of concern. First, the global economy is slowing putting downward pressures on new export orders to 50.6 in September, from 54.3 in August, indicating that we are losing one of the last positives for the regional economy. Second, a slowing Mid-America economy produced an import reading of 43.8 in September, its lowest level since we began the survey in 1994, down from August’s 55.8,” said Goss.
Other components of September’s Business Conditions Index were new orders at 46.6, down from August’s 48.9; production at 51.5, down from 53.0; inventories at 52.3, down from 55.2; and delivery lead time at 54.3, down from 56.8.
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.
Arkansas: For the first time since June, Arkansas’ leading economic indicator declined. The September index from a survey of supply managers slumped to 60.7 from August’s 67.2. Components of the overall index were new orders at 61.9, production at 61.8, delivery lead time at 62.0, inventories at 59.5, and employment at 57.1. “Trade has had some very positive impacts on the Arkansas economy. The new export order index for September was 57.7, reflecting solid growth in sales abroad. Even so, manufacturers selling domestically reported downturns in economic activity for the month,” said Goss.
Iowa: Once again, Iowa’s Business Conditions Index, a leading economic indicator, slumped to a regional low 35.7 from 40.8 in August and 45.8 in July. Components of the overall index for September were new orders at 26.8, production at 30.4, delivery lead time at 46.2, employment at 30.4, and inventories at 42.3. “We are still tracking negative impacts from this summer’s floods. While trucking has rebounded somewhat and computer-and electronic-component manufacturers reported business upturns, that was more than offset by downturns in export related activity, especially for nondurable manufacturing,” said Goss.
Kansas: For a third straight month, the Kansas Business Conditions Index, a leading economic indicator, advanced. The September index from a survey of supply managers in Kansas expanded to 58.2 from August’s 56.8 and July’s regional low of 44.7. Components of the overall index were new orders at 60.0, production at 63.3, delivery lead time at 66.7, employment at 36.7, and inventories at 70.0. “Weakness was reported among telecommunication firms and foods processors in the state. However, this was more than offset by upturns in business activity among transportation-equipment manufacturers and firms with ties to energy production,” said Goss.
Minnesota: For the sixth time in 2008, Minnesota’s Business Conditions Index slumped below growth neutral. The September index from a survey of supply managers declined to 43.4 from 44.6 in August. Components of the overall index for September were new orders at 37.1, production at 43.2, delivery lead time at 53.0, inventories at 51.6, and employment at 41.7. “There were certainly more negative reports than positive for September. Upturns by automobile-parts producers and telecommunication firms were more than offset by pullbacks reported by nondurable goods producers. Minnesota continues to be affected more by the negatives in the national economy than the rest of the region,” said Goss.
Missouri: Since May of this year, Missouri’s Business Conditions Index has been trending upward. The index, a leading economic indicator from a survey of supply managers in the state, expanded to 53.6 from 52.7 in August and 47.0 in July. Components of the overall index from the September survey were new orders at 56.7, production at 55.3, delivery lead time at 53.1, inventories at 47.4, and employment at 50.5. “No state in the region has been as negatively affected by the downturn in automobile production as Missouri. Spillovers from this downdraft have been more than offset recently by expanding economic activity from food processors and telecommunication firms in the state,” said Goss.
Nebraska: Nebraska’s leading economic indicator once again moved below growth neutral. The September Business Conditions Index from a survey of supply managers dipped to 49.1 from August’s tepid 51.2. Components of the overall index were new orders at 41.1, production at 51.6, delivery lead time at 57.4, inventories at 58.2, and employment at 47.1. “Firms with ties to automobile production are experiencing downturns in economic activity. Nondurable manufacturing firms, especially food processors, continue to detail reduced economic activity,” said Goss.
North Dakota: North Dakota’s September Business Conditions Index remained unchanged from August at 63.9. Components of the overall index for September were new orders at 70.8, production at 70.7, delivery lead time at 58.3, employment at 58.2, and inventories at 45.0. “As in prior months, growth connected to energy continues to propel overall economic expansion in the state. This has produced very good economic times for trucking firms even as food processors report reduced business activity,” said Goss.
Oklahoma: The Oklahoma Business Conditions Index once again advanced. The index, a leading economic indicator from a survey of supply managers, expanded to 57.1 from 54.1 in August. Components of the overall index for September were new orders at 58.2, production at 53.4, delivery lead time at 57.8, inventories at 56.7, and employment at 59.4. “Oklahoma continues to benefit from growth linked to expansions in the national, state and regional energy sectors. For example, Oklahoma trucking firms report solid upturns in economic activity. On the other hand, telecommunications firms experienced slower business activity,” said Goss.
South Dakota: South Dakota’s Business Conditions Index, a leading economic indicator from a survey of supply managers, rocketed to a regional high of 65.8 from August’s 61.9 and July’s 57.2. Components of the overall index for September were new orders at 69.4, production at 75.0, delivery lead time at 58.8, inventories at 55.9, and employment at 58.8. “Firms with strong ties to energy and agriculture continue to bolster growth in South Dakota. On the other hand, food-processing firms did not expand as in past months,” reported Goss.
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