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Job Losses Deepen for Mid-America:

Job Losses Deepen for Mid-America

Ernie Goss MP3

 
January survey results at a glance:

  • Business conditions index inches up from December’s record low.
  •  Export orders plummet to another record low.
  • Region loses jobs for the 12th time in the past 13 months.
  • Inflation gauge continues to indicate deflation in the supply chain.

Job Losses Deepen for Mid-America: Exports Decline to Record Low

The overall index for the Mid-America region, a leading economic indicator for the nine-state area, inched up from December’s record low, but continues to point to a very significant pullback in economic activity in the months ahead. The survey, based on a survey of supply managers in the region, also showed job losses for the 12th time in the past 13 months.

The overall index, or Business Conditions Index, advanced to 33.5 from December’s record low of 33.0. An index of 50.0 is considered growth neutral with January’s reading pointing to a deepening recession for the region during the first half of 2009 and potentially stretching into the second half of the year.

“While the overall index is up slightly for the month, it remains in the danger zone. Beginning in October, our survey has been in record low territory. Despite less fallout from the downturn in housing, a much stronger banking sector and healthy farm income, the region is now experiencing the impact of the national and global economic recession,” Creighton University Economics Professor Ernie Goss said today.

The January employment index plunged to a record low of 29.0 from December’s frail 34.5 and November’s weak 39.0. “January’s employment reading was the weakest that we have recorded since we began the study in 1994 and down significantly from December’s record low. In the fourth quarter of 2008, U.S. job losses were over 4.0 percent compared to the fourth quarter of 2007. During this same period of time, job losses for the nine states of Mid-America were approximately one percent. Surveys over the past several months indicate that gap between the United States and Mid-America will close in the months ahead as job losses escalate for Mid-America,” said Goss.

Accompanying the economic downturn has been an unparalleled pullback in the regional prices-paid index, said Goss. The inflation gauge, which tracks the cost of raw materials and supplies, expanded to an anemic 34.1 from December’s record low of 33.0.

“The global economic downturn has produced a very rapid slide in wholesale prices. Despite record low short-term interest rates from the Federal Reserve, rapid increases in the money supply, and deficit spending by the federal government, the global economic recession continues to weaken business-pricing power. I expect the consumer price index to reflect this downturn in wholesale prices in the first half of 2009,” said Goss.

Goss noted that the Federal Reserve’s targeted-funds rate is now essentially zero, well below that set during the last national economic downturn. At their last meeting, the Federal Reserve’s rate-setting committee indicated that it may attempt to push long-term interest rates, including mortgage rates, down in the months ahead. “I am concerned that this excessive stimulus from the Fed and U.S. government deficit spending will result in excessive inflation sometime in 2010,” 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, once again dipped to a very weak 23.6 from December’s 25.6, but higher than November’s record low of 22.4. “In my judgment, incoherent and opaque economic policy by the Federal Reserve and the U.S. Treasury over the past six months have hammered business confidence to these record lows,” said Goss.

Trade numbers remained very weak for January. Economic weakness among our trading partners continues to restrain exports. For a seventh straight month, new export orders plunged with a January reading of 26.8, a record low, and down from December’s 27.5. For the past three months, the index recorded record lows for new export orders. The January import index dipped to 39.1 from December’s 43.8 and November’s record low 38.6. “The global economic slowdown is putting significant downward pressure on exports, just as the U.S. economic recession is curbing imports. Unfortunately, exports appear to be falling faster than imports,” said Goss.

Other components of January Business Conditions Index were new orders at 28.6, up from December’s 26.8; production at 32.8, up from 29.0; inventories at 38.7 , up from 37.3; and delivery lead time at 47.2, down from 47.4.

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 a fifth straight month, the leading economic indicator for Arkansas declined. January’s Business Conditions Index, based on a survey of supply managers, wilted to a record low of 25.8 from 39.8 in December. Components of the overall index for January were new orders at 19.2, production at 19.3, delivery lead time at 50.0, inventories at 46.2, and employment at a record low 15.4. “The state’s durable goods manufacturing sector continues to shed jobs at a rapid pace. Heavy manufacturing firms dependent on sales abroad have been especially hard hit. Based on the weakness recorded in our surveys over the past several months, I expect Arkansas’ seasonally adjusted unemployment rate to rise to 7 percent by the middle of 2009,” said Goss.

Iowa: For an eighth straight month, Iowa’s Business Conditions Index, a leading economic indicator, dipped below growth neutral. The index, based on a monthly survey of supply managers, plunged to 22.3, a record low, and down from December’s previous record low of 30.4. Components of the overall index for January were new orders at 10.7, production at 10.9, delivery lead time at 50.0, employment at 28.6, and inventories at 32.1. “Firms with ties to agriculture, except food processors, have reported slowing business activity. Heavy manufacturing firms have been especially hard hit. Over the past year, the state’s unemployment rate has risen by roughly one percent. I expect the rate of increase to escalate in the months ahead with the seasonally adjusted rate increasing by another 1 percent by mid-year,” said Goss.

Kansas: The Business Conditions Index for Kansas, a leading economic indicator, increased for the first time since September 2008. Even so, the January reading, based on a survey of supply managers stood at a very weak 39.6, up from 31.1 in December. Components of the overall index were new orders at 36.4, production at 40.9, delivery lead time at 50.0, employment at 30.0, and inventories at 50.0. “The global economic recession is having a negative impact on the state’s large aircraft and transportation-parts producers. Recent mass layoffs in the state will force the unemployment rate higher in the months ahead. The state’s unemployment rate has increased by approximately one percent over the past year. I expect the state’s seasonally adjusted jobless rate to climb above 6 percent by mid-2009,” reported Goss.

Minnesota: For a sixth straight month, Minnesota’s Business Conditions Index fell below growth neutral. The index, a leading economic indicator based on a survey of supply managers in the state, dropped to 30.1, a record low, down from December’s 32.2. Components of the overall index for January were new orders at 25.6, production at 28.0, delivery lead time at 47.7, inventories at 26.1, and employment at 28.4. “Weakness was reported by firms across the business spectrum in the state from durable goods manufacturing to telecommunications. The state’s unemployment rate has risen to its highest level in almost 25 years. Based on our survey, I expect the state’s jobless rate to continue growing and top 8 percent by end of the second quarter of 2009,” said Goss.

Missouri: For a fourth straight month, Missouri’s Business Conditions Index sank below growth neutral. The index, a leading economic indicator based on a survey of supply managers in the state, declined to 32.4, a record low, down from December’s 36.9 and November’s 39.3. Components of the overall index from the January survey were new orders at 27.6, production at 27.5, delivery lead time at 43.9, inventories at 38.4, and employment at 33.9. “The state continues to shed jobs tied to vehicle production. Additionally, firms dependent on international sales have been particularly hard hit. For the first time in almost 25 years, the state’s unemployment rate has risen above 7 percent. I expect the state’s jobless rate to advance by another one percent by mid-year.

Nebraska: For a fifth consecutive month, Nebraska’s leading economic indicator moved below growth neutral. The January Business Conditions Index, a leading economic indicator based on a survey of supply managers in the state, slumped to 35.9 from December’s 37.1, up from November’s record low of 33.5. Components of the overall index for January were new orders at 29.6, production at 35.8, delivery lead time at 46.6, inventories at 40.7, and employment at 35.1. “Firms in the state’s durable and nondurable manufacturing sectors continue to report pullbacks in business activity. Despite the deepening recession, trucking firms reported positive growth for January. Compared to the region and the nation, Nebraska’s unemployment rate remains quite low, but it has advanced over the past several months. I expect the state’s jobless rate, seasonally adjusted, to grow to 5 percent by the end of the second quarter of 2009.

North Dakota: For the first time since August 2002, North Dakota’s leading economic indicator dipped below growth neutral. The Business Conditions Index, based on a survey of supply managers, declined to 49.2, slightly below growth neutral, from December’s 53.9. Components of the overall index for January were new orders at 55.6, production at 50.0, delivery lead time at 59.1, employment at 40.0, and inventories at 31.8. “The national and global economic slowdowns are beginning to weigh on the North Dakota economy. Durable and nondurable manufacturing firms in the state, especially those dependent on international sales, detailed pullbacks in January business activity. Over the past several months, the state’s jobless rate has remained stable and low. However, I expect the jobless rate, seasonally adjusted, to increase to 4.0 by the end of the second quarter.

Oklahoma: Despite numbers somewhat similar to a year ago, Oklahoma’s economy continues to outperform the rest of the region. The Business Conditions Index, a leading economic indicator from a survey of supply managers in the state, dipped to 49.9 from 51.6 in December. Oklahoma’s reading for January was the highest in the region but slightly below growth neutral. Components of January’s overall reading were new orders at 51.2, production at 48.2, delivery lead time at 45.4, inventories at 53.2, and employment at 51.6. “Business conditions softened for telecommunication firms and durable manufacturing companies in the state. On the other hand, food processors in the state experienced an upturn in economic activity. The global economic downturn will begin to negatively impact the Oklahoma economy in the months ahead. I expect the state’s seasonally adjusted unemployment rate to rise to 5.5 percent by the end of the second quarter of 2009,” said Goss.

South Dakota: For a fourth straight month, South Dakota’s Business Conditions Index declined. The index, a leading economic indicator based on a survey of supply managers, sank to 39.2, a record low, down from December’s 42.5 and November’s 47.9. Components of the overall index for January were new orders at 30.8, production at 38.5, delivery lead time at 53.8, inventories at 53.8, and employment at 34.6. “Until very recently, South Dakota’s manufacturing sector had held up much better than manufacturing in the rest of the region. However, heavy manufacturing firms, especially those dependent on sales abroad, are now experiencing significant weakness. The state’s jobless rate has increased by one percent over the past year. I expect South Dakota’s seasonally adjusted unemployment rate to climb to 4.5 percent by mid-2009.

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