Mid-America Economy Grows Slightly, but with Job Losses
August survey results at a glance:
- Business conditions index again edges above growth neutral.
- Region loses jobs for the seventh time in eight months.
- Economic confidence bounced to highest level in almost a year.
- Inflation gauge dips, but continues to indicate excessive inflation.
Mid-America Economy Grows Slightly, but with Job Losses; Inflation Cools
For the fifth straight month, the Mid-America survey showed job losses even as the region’s Business Conditions Index remained above growth neutral, according to the August survey of supply managers in the nine-state region.
The Business Conditions Index, a leading economic indicator, dipped slightly to a tepid 51.4 from July’s 51.5 and June’s 50.5. “The regional economy has begun to mirror the national economy with weak, but positive, output growth and job losses. While the inflation gauge was down for the month, it is still telegraphing excessive inflation in the pipeline,” Creighton University Economics Professor Ernie Goss said today.
The August employment index advanced to a weak 47.5 from July’s 41.4. “Due to solid productivity growth, firms have increased output with fewer and fewer workers. Thus, I expect unemployment rates to continue to rise for the overall region, but with significant variation across the nine states,” said Goss.
The prices-paid index, which tracks the cost of raw materials and supplies, plunged to 86.7 from 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. While recent strengthening of the dollar has cooled inflation a bit, we would have to see oil prices dive below $100 per barrel to experience any material relief on the inflation front,” said Goss.
“When the Federal Reserve’s rate-setting committee meets again on Sept. 16, it cannot reduce rates due to the inflationary pressures in the pipeline detected in regional and national surveys, nor can it increase rates for fear of damaging an already weak labor market. However, I expect the next move by the Fed will be to increase interest rates in early 2009 when inflation is the bigger danger,” said Goss.
Looking ahead six months, economic optimism, captured by the confidence index, expanded to 50.0 from July’s anemic 37.8 and June’s 35.1. “This is the highest reading we have recorded since last September. A stronger dollar and downturns in commodity prices boosted the index to growth neutral,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
As in previous months, regional growth in new export orders was an important component of expanding economic conditions. “Even after the recent upturn in the value of the dollar, the U.S. currency remains cheap, making the nation’s goods less expensive abroad and boosting the new export-orders index to 54.3. While the August reading was healthy, it is down from July’s 55.4 and reflects slowing economic growth for our trading partners. At the same time, the weak dollar has yet to really restrain imports to any great degree. The August import index dipped to a still strong 55.8 from July’s 56.3,” said Goss.
Other components of the month’s Business Conditions Index were new orders at 48.9, down from July’s 52.6; production at 53.0, down from 55.7; inventories at 55.2, up from 54.0; and delivery lead time at 56.8 up from 54.0.
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: The leading economic indicator for Arkansas soared to its highest level since February 2007. The Business Conditions index expanded to 67.2 from 61.8 in July and 59.2 in June. Components of the overall index for August were new orders at 76.5, production at 73.5, delivery lead time at 64.7, inventories at 55.9, and employment at 52.9. “Even though Arkansas has lost jobs over the past several months, the jobless rate in the state has declined by a full percentage point over the past year. I expect Arkansas to begin adding jobs in the last quarter of 2008,” said Goss.
Iowa: The Iowa Business Conditions Index, a leading economic indicator, from a monthly survey of supply managers in the state, plummeted to a regional low of 40.8 from July’s 45.8 and June’s 44.3. Components of the overall index for August were new orders at 34.2, production at 36.8, delivery lead time at 47.2, employment at 44.7, and inventories at 44.7. “Durable-goods manufacturers, especially those with ties to the automobile industry, have reported pullbacks in economic activity over the past several months. As a result of slower growth, Iowa’s large trucking industry is experiencing declining business activity. Economic growth was weaker in non-metropolitan areas than metropolitan areas,” said Goss.
Kansas: The Business Conditions Index for Kansas, a leading economic indicator, rose to its highest level since August of last year. The index from a survey of supply managers in Kansas advanced to 56.8 from July’s regional low of 44.7 and June’s 42.7. Components of the overall index for August were new orders at 61.1, production at 61.1, delivery lead time at 62.0, employment at 33.3, and inventories at 72.2. “While food processors continue to experience slowing business activity, growth in durable manufacturing, especially for transportation equipment and parts producers more than offset this decline. The unemployment rate has risen by half of a percentage point over the past year. I expect the Kansas jobless rate to increase by another 0.2 percent before it stabilizes by the end of the year,” said Goss.
Minnesota: For the fifth time in 2008, Minnesota’s Business Conditions Index slipped below growth neutral. The August index from a survey of supply managers declined to 44.6 from 50.3 in July and 49.0 in June. Components of the overall index for August were new orders at 40.2, production at 45.6, delivery lead time at 52.1, inventories at 47.8, and employment at 42.6. “Minnesota’s unemployment rate has been steadily rising over the past several months. Our survey indicates that it is likely to continue to increase by another 0.2 percent by the end of the year before it stabilizes. Weakness was recorded among the state’s nondurable goods producers, especially food processors,” said Goss.
Missouri: While Missouri continues to lose jobs, its Business Conditions Index was above growth neutral for the first time since February of this year. The index, a leading economic indicator from a survey of supply managers in the state, expanded to 52.7 from July’s 47.0 and June’s 46.5. Components of the overall index were new orders at 55.8, production at 55.70, delivery lead time at 53.1, inventories at 55.0, and employment at 42.9. “As a result of past weakness, Missouri’s unemployment rate rose to the highest level in the nine-state region. The upturn in the August Business Conditions Index is certainly promising for future growth. However, there is economic weakness already in the pipeline. I expect Missouri’s jobless rate to expand by another 0.2 percent by the end of the year. Food processing businesses continue to experience improving business activity while firms with ties to vehicle manufacturing are recording declining economic fortunes,” said Goss.
Nebraska: For a second straight month, Nebraska’s Business Conditions Index edged above growth neutral. The index, a leading economic indicator from a survey of supply managers in the state, expanded to 51.2 from 50.8 in July and 46.9. Components of the overall index for August were new orders at 45.0, production at 53.3, delivery lead time at 58.8, inventories at 61.5, and employment at 47.0. “I expect Nebraska’s economy to grow in a slightly positive direction. Even so, weakness already in the pipeline will show up in an unemployment rate that increases by another 0.2 percent by the end of the year before it stabilizes. Except for durable- goods producers selling abroad, Nebraska’s heavy manufacturers recorded softer economic conditions,” said Goss.
North Dakota: North Dakota’s Business Conditions Index rose to the highest level in the region. The index, a leading economic indicator from a survey of supply managers and business leaders in the state, moved to 63.9 from July’s 63.0 and June’s 62.4. Components of the overall index for August were new orders at 70.0, production at 72.7, delivery lead time at 59.1, employment at 59.1, and inventories at 40.0. “Growth among firms with ties to energy and agricultural sectors more than offset pullbacks in economic activity among food processors in the state. I expect this positive trend to continue for the remainder of 2008 with North Dakota’s jobless rate declining by another 0.1 percent,” said Goss.
Oklahoma: The Oklahoma Business Conditions Index dipped for August to 54.1 from July’s 59.3 Components of the overall index for August were new orders at 55.7, production at 54.3, delivery lead time at 53.4, inventories at 51.4, and employment at 53.2. “Contrary to the rest of the nation and region, Oklahoma’s unemployment rate is actually lower than it was one year ago. Higher oil prices have begun to show up in our survey results with firms with ties to energy experiencing very healthy growth. On the other hand, telecommunications firms detailed softer economic conditions. I expect Oklahoma’s unemployment to remain unchanged for the rest of the year,” said Goss.
South Dakota: South Dakota’s Business Conditions Index advanced to 61.9 from 57.2 in July and 57.0 in June. Components of the overall index for August were new orders at 69.2, production at 65.4, delivery lead time at 57.7, inventories at 46.2, and employment at 57.7. “Government data released in September will show that in August there were more workers with jobs in South Dakota than ever before. Manufacturers selling abroad experienced healthy growth for August. I expect this growth to continue for the rest of 2008,” said Goss.
For historical data and forecasts visit our website at: http://www.creighton.edu/business/economicoutlook/