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No Improvement in Mid-America Economic Outlook

Monthly Index Shows No Improvement

  Professor Goss Interview MP3

February survey results at a glance:

  •  Business conditions index advances but remains less than healthy.
  • Exports and imports are at record or near record lows.
  •  Region loses jobs for the 13th time in 14 months.
  • Inflation gauge continues to indicate deflation in the supply chain.

No Improvement in Mid-America Economic Outlook: Trade Numbers Remain Weak

The overall index for the Mid-America region, a leading economic indicator for the nine-state area, advanced from January’s feeble level and continues to point to a 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 13th time in the past 14 months.

The overall index, or Business Conditions Index, inched up to 34.6 from January’s 33.5 and December’s record low 33.0. An index of 50.0 is considered growth neutral, and February’s reading points to a deepening recession for the region well into the third quarter of 2009.

“Since October 2008, our survey has been in record low territory. Reports of record economic weakness were especially acute for heavy manufacturing firms and firms dependent on international sales,” Creighton University Economics Professor Ernie Goss said today.

The February employment index expanded to 33.1 from January’s record low 29.0 “Job losses were especially large for durable-goods producers in the region. I expect job losses to continue for the next six months with unemployment rates rising for all nine states in the Mid-America region,” said Goss.

Accompanying job losses and pullbacks in economic activity have been record declines in the regional inflation gauge. The prices-paid index, which tracks the cost of raw materials and supplies, climbed to 37.7 from 34.1 in January and December’s record low 33.0.

“The rapid global economic downturn has produced a substantial slide in wholesale prices. Despite the Federal Reserve’s record increase in the nation’s money supply, and deficit spending by the federal government, the global economic recession continues to weaken business-pricing power. Likewise, a stronger dollar has contributed to the deflationary trend,” said Goss.

At the January meeting of the Federal Reserve’s rate-setting committee (FOMC), it was noted that the Fed has run out of rate-cutting ammunition with the current funds rate at 0% - 0.25%, its lowest level since the Federal Reserve was created in 1913. Members of the FOMC decided to purchase up to $100 billion of house-related government-sponsored enterprise (GSE) debt with the aim of providing support to the mortgage and housing markets.

“In other words, the Fed has now turned to less traditional means of stimulating the economy and underpinning the housing and banking sectors. I remain concerned that the Fed’s excessive rate cutting, combined with its recent forays into the housing market 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, reflects the economic concern among survey participants with a February reading of 31.5 which was up significantly from January’s 23.6. “While the reading is up materially, the lack of a coherent and transparent economic policies from the Federal Reserve and the U.S. Treasury continue to hammer business confidence,” said Goss.

Trade numbers remained very weak for February. “Economic weakness among our trading partners and a strong dollar continue to restrain exports. After declining for seven straight months, new export orders advanced to a feeble 29.9 from January’s record low 26.8. For the past three months, new export orders have recorded record lows. Furthermore, the national economic recession is significantly restraining imports. The February import index dipped to 38.7 from January’s 39.1 and December’s 43.8,” said Goss.

Other components of the February Business Conditions Index were new orders at 30.7, up from January’s 28.6; production at 30.2, down from 32.8; inventories at 39.9, up from 38.7; and delivery lead time at 48.4, up from 47.2.

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 first time since August, Arkansas’ leading economic indicator increased. February’s Business Conditions Index, based on a survey of supply managers, climbed to a still frail 29.3 from January’s record low 25.8. Components of the overall index for February were new orders at 21.4, production at 21.6, delivery lead time at 57.1, inventories at 53.6, and employment at 17.9. “Over the past year, the state’s transportation-equipment industry has been battered by the global recession with international sales down dramatically. This will be the turnaround industry for Arkansas. Once we see the transportation-equipment industry adding jobs, the state’s expansion will be underway,” said Goss.

Iowa: For the ninth straight month, Iowa’s Business Conditions Index was below growth neutral. The index, based on a monthly survey of supply managers, rose to 43.2, still weak, but up significantly from January’s record low 22.3. Components of the overall index for February were new orders at 39.6, production at 41.7, delivery lead time at 52.1, employment at 43.8, and inventories at 43.9. “While the agriculture machinery manufacturing industry has held up better than many other industries in Iowa, I expect it to be the turnaround industry for the state and will provide an early signal of an expanding global market place,” said Goss.

Kansas: The Kansas Business Conditions Index, a leading economic indicator, declined for the fourth time in the past five months. The February reading slipped to a very weak 38.4 from January’s 39.6. Components of the overall index were new orders at 33.3, production at 41.7, delivery lead time at 40.9, employment at 36.4, and inventories at 45.8. “Until the final quarter of 2008, the aircraft and parts manufacturing sector in Kansas had weathered the recession. However, the global recession has begun to have a substantial negative impact on the overall state economy. The aircraft and parts manufacturing industry will be the turnaround industry for Kansas and will provide an early signal of the beginning of an economic expansion,” said Goss.

Minnesota: For a seventh 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 a regional low of 28.4 from January’s 30.1, also a regional low. Components of the overall index for February were new orders at 26.3, production at 25.6, delivery lead time at 39.3, inventories at 27.4, and employment at 27.6. “Since the beginning of the recession, Minnesota’s computer and electronic-product manufacturing industry has lost more than 1,000 jobs. I expect this industry to be the state’s turnaround industry and will provide an early signal of an economic expansion,” said Goss.

Missouri: For a fifth straight month, Missouri’s Business Conditions Index sank below growth neutral. The index declined to 30.3, a record low, down from January’s 32.4, also a record low. Components of the overall index from the February survey were new orders at 25.3, production at 25.0, delivery lead time at 45.9, inventories at 39.7, and employment at 28.1. “Since the beginning of the recession, the state’ transportation equipment and parts manufacturing industry has lost almost 10,000 jobs. I expect this industry to be Missouri’s turnaround industry and will provide an early signal of an economic expansion,” said Goss.

Nebraska: For a sixth consecutive month, Nebraska’s leading economic indicator was below growth neutral. The February Business Conditions Index, a leading economic indicator based on a survey of supply managers in the state, was unchanged from January’s 35.9. Components of the overall index for February were new orders at 30.1, production at 34.5, delivery lead time at 49.4, inventories at 38.5, and employment at 34.7. “While Nebraska’s computer and electronic-product manufacturing is relatively small, it has lost approximately 500 jobs since the beginning of the recession. I expect this industry to be Nebraska’s turnaround industry and will provide an early signal of an economic expansion,” said Goss.

North Dakota: For a second straight month, North Dakota’s leading economic indicator slipped below growth neutral to 44.4 from February’s 49.2. Components of the overall index for February were new orders at 44.4, production at 40.0, delivery lead time at 65.0, employment at 38.9, and inventories at 35.0. “North Dakota and Oklahoma are the only two states in the region that have yet to experience the recession. Our survey indicates that this is likely to change in the months ahead. However, the downturn will be much more shallow for North Dakota than for other states in the region. North Dakota’s agriculture machinery- and parts-manufacturing industry has been a pillar of the state economy. However, with farm income weakening, it has come under economic pressure. I expect this industry to be North Dakota’s turnaround industry and provide an early signal that North Dakota is back on a solid growth path,” said Goss.

Oklahoma: For a second straight month, Oklahoma’s leading economic indicator slumped below growth neutral to 46.9 from 49.9 in January and 51.6 in December. Components of February’s overall reading were new orders at 48.5, production at 46.5, delivery lead time at 49.3, inventories at 47.7, and employment at 42.5. “Oklahoma’s large mining-machinery-manufacturing industry has been negatively affected by the global recession. I expect this industry to be Oklahoma’s turnaround industry and will provide an early signal that the state is back on a solid growth path,” said Goss.

South Dakota: For the first time since September, South Dakota’s Business Conditions Index advanced. The index, a leading economic indicator based on a survey of supply managers, stood at a weak 45.7, a high for the region, and up from January’s record low 39.2. Components of the overall index for February were new orders at 46.4, production at 50.0, delivery lead time at 50.2, inventories at 53.6, and employment at 32.1. “The recession has significantly weakened South Dakota’s computer and electronic-product manufacturing industry. I expect this to be the state’s turnaround industry and provide an early signal that South Dakota is back on a solid growth path,” said Goss.

 

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