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Leading Economic Indicator for Mid-America Improves

Leading Economic Indicator for Mid-America Improves

March survey results at a glance:

  • Business conditions index rises to highest level since October 2008.
  • Region loses jobs for the 14th time in 15 months.
  • Inflation gauge continues to indicate deflation in the supply chain.
  • On average, supply managers expect to receive a pay raise of 1.3 percent this year.
  • Regional trade numbers remain very weak.

Leading Economic Indicator for Mid-America Improves: Business Confidence Climbs to Two Year High

The overall index for the Mid-America region, a leading economic indicator for the nine-state area, advanced from February’s weak level, but continues to point to a struggling economy in the months ahead. The survey, based on a survey of supply managers in the region, also showed job losses for the 14th time in the past 15 months.

The overall index, or Business Conditions Index, climbed to 39.7 from February’s 34.6 and January’s 33.5. An index of 50.0 is considered growth neutral, and March’s reading points to a deepening recession for the region until the end of the third quarter of 2009.

“Since October 2008, the overall index from the survey has been in record low territory and is significantly lower than in the last national recession. This recession is stacking up to be the most severe economic downturn in the past 25 years,” Creighton University Economics Professor Ernie Goss said today.

The March employment index inched up to an anemic 34.0 from February’s 33.1 and January’s record low 29.0. “The recession definitely came to Mid-America late. Between the beginning of the national recession in December 2007 and October 2008, the region gained more than 120,000 jobs. However, between October 2008 and January 2009, the region lost more than 200,000 jobs. Our job indices are consistent with an additional 220,000 jobs lost by the end the third quarter of this year,” director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Despite record low interest rates and expanding federal spending, the region’s inflation gauge continues to point to deflation at the wholesale level. The prices-paid index which tracks the cost of raw materials and supplies rose to 41.1 from February’s 37.7, January’s 34.1 and December’s record low 33.0.

At the March meeting of the Federal Reserve, the rate-setting committee indicated that it expected inflation to remain well contained and there was little likelihood of excessive inflation even though it has set the current funds rate at 0 percent to 0.25 percent, its lowest level since 1913 when the Federal Reserve was created. Also at the March meeting, the Federal Reserve decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. “I am very concerned that this excessive monetary stimulus will result in excessive inflation once the economy has exited the recession sometime at the end of 2009,” said Goss.

Looking ahead six months, economic optimism, captured by the confidence index, soared to its highest level since January 2007. The regional business confidence index expanded to 58.5 from 31.5 in February, which was up significantly from January’s 23.6. “Our survey was conducted after Treasury Secretary Tim Geithner announced the U.S. Treasury bank plan, but before the GM blowup. I think economic expectations as expressed by supply managers got ahead of the economic fundamentals,” said Goss.

As in previous months, trade numbers remained very weak. “Economic weakness among our trading partners and a strong dollar continue to restrain exports. However for a second straight month, new export orders advanced. The regional export orders index grew to 31.8 from February’s 29.9 and January’s record low 26.8. Furthermore, the national economic recession is placing significant downward pressure on imports. Despite this, the March import index advanced to 44.5 from 38.7 in February and 39.1 in January,” said Goss.

Other components of the March Business Conditions Index were new orders at 40.7, up from February’s 30.7; production at 39.9, up from 30.2; inventories at 39.7, down from 39.9; and delivery lead time at 44.3, down from 48.4.

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 Creighton Economic Forecasting Group uses the same methodology as a national survey by the Institute for Supply Management, formerly the Purchasing Management Association, which has formally surveyed its membership since 1931 to gauge business conditions.. 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 second month in a row, Arkansas’ leading economic indicator increased. March’s Business Conditions Index, based on a survey of supply managers, inched upward to a still frail 29.6, a regional low, from February’s 29.3 and January’s record low 25.8. Components of the overall index for March were new orders at 19.0, production at 27.5, delivery lead time at 45.2, inventories at 51.8, and employment at 17.3. “The full force of the recession did not hit Arkansas until October 2008. Between the beginning of the national recession in December 2007 and October 2008, the state lost only 2,600 jobs. However, between October 2008 and February 2009, Arkansas lost more than 25,000 jobs. Our job indices are consistent with additional jobs losses in the state of almost 38,000 by the end the third quarter of this year,” said Goss.

Iowa: For the 10th straight month, Iowa’s Business Conditions Index was below growth neutral. The index slipped to 42.6 from February’s 43.2, but was up from January’s record low 22.3. Components of the overall index for March were new orders at 42.6, production at 39.0, delivery lead time at 44.2, employment at 49.2, and inventories at 40.1. “The recession did not begin in Iowa until roughly May of last year. Between the beginning of the national recession in December 2007 and May 2008, Iowa gained 3,500 jobs. However, between May 2008 and February 2009, Iowa lost approximately 23,000 jobs. Our job indices are consistent with additional jobs losses of another 15,000 in the state by the end the third quarter of this year,” said Goss.

Kansas: The Kansas Business Conditions Index, a leading economic indicator, slumped for the fifth time in the past six months. The March reading from a monthly survey of supply managers slipped to a very weak 35.9 from February’s 38.4 and January’s 39.6. Components of the overall index were new orders at 25.0, production at 37.5, delivery lead time at 37.1, employment at 34.9, and inventories at 47.9. “The recession did not begin in Kansas until June of last year. Between the beginning of the national recession in December 2007 and June 2008, the state gained 800 jobs. However, between June 2008 and February 2009, Kansas lost approximately 12,000 jobs. Our job indices are consistent with additional jobs losses of another 50,000 in Kansas by the end the third quarter of this year. Due to the state’s heavy dependence on aircraft manufacturing, an industry with strong ties to the global economy, the Kansas economy will struggle more than the rest of the region,” said Goss.

Minnesota: For the eighth month in a row, Minnesota’s Business Conditions Index fell below growth neutral. The leading economic indicator based on a survey of supply managers, inched up to 31.0 from February’s 28.4 and January’s 30.1. Components of the overall index for March were new orders at 29.4, production at 25.9, delivery lead time at 42.2, inventories at 30.4, and employment at 29.3. “The Minnesota recession began in December 2007, just as it did for the U.S. Between the beginning of the recession and February 2009, the state lost almost 82,000 jobs. Our job indices are consistent with additional jobs losses of another 30,000 in Minnesota by the end the third quarter of this year,” said Goss.

Missouri: For the sixth straight month, Missouri’s Business Conditions Index remained below growth neutral. The index rose to 39.6 from February’s 30.3, a record low for Missouri. Components of the overall index from the March survey were new orders at 42.0, production at 41.0, delivery lead time at 48.0, inventories at 40.4, and employment at 33.0. “The recession did not begin in Missouri until February of last year. Between the beginning of the national recession in December 2007 and February 2008, the state gained 3,100 jobs. However, between February 2008 and February 2009, Missouri lost approximately 51,000 jobs. Our job indices are consistent with additional jobs losses of another 35,000 for the state by the end the third quarter of this year,” said Goss.

Nebraska: For the seventh consecutive month, Nebraska’s leading economic indicator sank below growth neutral. The March Business Conditions Index inched up to a weak 36.7 from February’s 35.9. Components of the overall index for March were new orders at 29.6, production at 35.3, delivery lead time at 48.2, inventories at 40.4, and employment at 33.8. “The recession did not begin in Nebraska until October of last year. Between the beginning of the national recession in December 2007 and October 2008, Nebraska gained 2,900 jobs. However, between October 2008 and February 2009, the state lost approximately 12,000 jobs. Our job indices are consistent with additional jobs losses in Nebraska of another 14,000 by the end the third quarter of this year,” said Goss.

North Dakota: For the third straight month, North Dakota’s leading economic indicator from a survey of supply managers dipped below growth neutral to 40.5 from February’s 44.4 and January’s 49.2. Components of the overall index for March were new orders at 38.9, production at 38.8, delivery lead time at 45.0, employment at 44.5, and inventories at 36.3. “The recession did not begin in North Dakota until January 2009. Between the beginning of the national recession and January 2009, North Dakota gained 3,000 jobs. However, in the last two months, the state has lost 3,000 jobs. Of course the business closures from the floods and the subsequent recovery will have significant impacts on North Dakota’s economy. Any dramatic out-migration of residents and businesses will have long-term and negative impacts on the state economy. Hopefully, affected residents and businesses will re-build in North Dakota,” said Goss.

Oklahoma: For the third straight month, Oklahoma’s leading economic indicator slumped below growth neutral. The index, from a survey of supply managers, sank to 37.2 from February’s 46.9 and January’s 49.9. Components of March’s overall reading were new orders at 43.0, production at 23.3, delivery lead time at 43.4, inventories at 42.6, and employment at 43.4. “The recession did not begin in Oklahoma until December of last year. Between the beginning of the national recession in December 2007 and December 2008, Oklahoma gained 19,000 jobs. However, between December 2008 and February 2009, the state lost approximately 12,000 jobs. Our job indices are consistent with additional jobs losses in Oklahoma of another 25,000 by the end the third quarter of this year,” said Goss.

South Dakota: For the fifth time since September, South Dakota’s Business Conditions Index moved lower. The leading economic indicator, based on a survey of supply managers, declined to 42.1 from February’s 45.7. Components of the overall index for March were new orders at 48.2, production at 46.4, delivery lead time at 46.5, inventories at 37.5, and employment at 33.9. “The recession did not begin in South Dakota until November of last year. Between the beginning of the national recession in December 2007 and November 2008, the state gained 3,200 jobs. However, between November of 2008 and February of 2009, South Dakota lost approximately 3,400 jobs. Our job indices are consistent with additional jobs losses of another 12,000 for the state by the end the third quarter of this year,” said Goss.

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