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Leading Economic Indicator Plunges for October

Leading Economic Indicator Plunges for October

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October survey results at a glance:

  •  Business conditions index signals frail regional economy.
  •  Inflation gauge indicates increasing price pressures in the pipeline.
  •  No jobs added in October.
  •  Supply managers expect holiday sales to decline by 1.6 percent from last year.

Leading Economic Indicator Plunges for October
Pointing to Fragile Recovery

The October Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, slumped to 51.8 from September’s much healthier 56.2, indicating a fragile recovery, according to the latest survey results. An index of 50.0 is considered growth neutral.

“This month’s decline suggests that the economic recovery underway is going to be a disappointing one. In fact, the volatility and level of the overall index over the past several months, indicates that a double dip recession is a growing possibility. Downturns in farm income, in addition to legislative uncertainty in Washington, are having negative impacts on the regional economy,” Creighton University Economics Professor Ernie Goss said today.

After rising above growth neutral for September, the employment index dipped to 50.0 from 52.1 in September. “Even though unemployment rates are declining across the region, the labor market, like the national, is not in good shape. Since October of last year, government data shows that the region has lost almost 425,000, or 3.2 percent, of its jobs. While our survey indicates the pace of job losses will diminish, I expect the region to continue to lose jobs,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Rebounding prices have accompanied the struggling regional economy. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a fifth straight month to 68.9 from September’s 68.1. “Supply managers reported that prices for raw materials and supplies rose by an average of 1.5 percent over the past year. However, recent growth in the prices-paid index due to a weak dollar and record low Federal Reserve (Fed) interest rates, will result in elevated inflationary pressures at the consumer level as early as the middle of 2010 in my judgment,” said Goss.

At the Fed’s September meeting it was announced that, “Nonetheless, with the significant under-utilization of resources expected to persist through 2011, the staff forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009.”“Supply managers in our survey think that this outlook is too optimistic. I agree with supply managers and expect inflationary pressures to rise above the Fed’s acceptable range by the middle of 2010,” said Goss.

Looking ahead six months, economic optimism, captured by the October confidence index, dipped to a still strong 65.4 from 73.4 in September. “Very low interest rates, both short-term and long-term, and a slowly improving housing market have lifted the economic outlook of supply managers in the Mid-America region. This month we asked supply managers their expectations for the holiday buying season. On average, supply managers expect holiday sales to decline by 1.6 percent from last year compared to a normal six percent growth,” said Goss.

Consistent with a weak economy, trade numbers were once again feeble. New export orders slipped to 49.3 from September’s 54.6 while imports plunged to 50.7 from 56.0.

Supply managers in the nine-state region continue to trim inventories, albeit at a slower pace. The October inventory index rose to 44.4 from September’s 43.5. “This is the 13th straight month that the inventory index has been below growth neutral. Even as business confidence has grown, we have yet to record any restocking of inventories for raw materials and supplies. Companies have been very vigilant in reducing inventories,” said Goss.

Other components of the October Business Conditions Index were new orders at 53.6, down from 64.5 in September; production or sales at 53.5, down from 66.0; and delivery lead time at 57.9, up from 54.8.

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 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: The state’s leading economic indicator has expanded for seven of the last nine months. However, the Business Conditions Index for October, based on a survey of supply managers, increased to a still weak 42.6 from 41.2 in September. Components of the overall index for October were new orders at 37.3, production at 34.2, delivery lead time at 57.1, inventories at 46.0, and employment at 38.4. Since the national recession began in December 2007, Arkansas has lost 3.1 percent of its jobs with 2.9 percent of the loss occurring since October of 2008. “Even though Arkansas’ unemployment rate has stabilized, based on our surveys over the past several months, I expect the state’s jobless rate to increase by another 0.2 percent by the end of the year,” said Goss.

Iowa: For a second straight month, Iowa’s Business Conditions Index bounced above growth neutral. The index, a leading economic indicator from a survey of supply managers in the state, climbed to 55.5 from 52.9 in September and 48.9 in August. Components of the overall index for October were new orders at 60.9, production at 60.8, delivery lead time at 61,6, employment at 48.6, and inventories at 45.3. Since the national recession began in December 2007, Iowa has lost 3.0 percent of its jobs with 2.9 percent of the loss occurring since October 2008. “Even though Iowa’s unemployment rate has stabilized, based on our surveys over the past several months, I expect the state’s jobless rate to climb by another 0.3 percent by the end of the year,” said Goss.

Kansas: The leading economic indicator for Kansas from a monthly survey of supply managers was unchanged from September. The October Business Conditions index stood at 50.0. Components of October’s overall index were new orders at 52.0, production at 60.1, delivery lead time at 48.9, employment at 57.3, and inventories at 44.3. Since the national recession began in December 2007, Kansas has lost 3.9 percent of its jobs with the full loss occurring since October 2008. “Even though the Kansas unemployment rate has dipped slightly, based on our surveys over the past several months, I expect the state’s jobless rate to increase by another 0.5 percent by the end of the year,” said Goss.

Minnesota: The state’s leading economic indicator continues to point to improving economic conditions in the months ahead. The Business Conditions Index, based on a survey of supply managers, expanded to 55.9 from September’s 55.4. Components of the overall index for October were new orders at 64.9, production, or sales, at 60.9, delivery lead time at 59.5, inventories at 52.1, and employment at 42.2. Since the national recession began in December 2007, Minnesota has lost 4.8 percent of its jobs with 4.2 percent of the loss occurring since October of 2008. “Even though Minnesota’s unemployment rate has recently declined, based on our surveys over the past several months, I expect the state’s jobless rate to increase by another 0.6 percent by the end of the year,” said Goss.

Missouri: For the fourth consecutive month, Missouri’s Business Conditions Index was above growth neutral. The index slipped slightly to 53.4 from 53.7 in September. Components of the overall index from the October survey were new orders at 60.6, production at 60.0, delivery lead time at 53.7, inventories at 45.0, and employment at 48.1. Since the national recession began in December 2007, Missouri has lost 3.2 percent of its jobs with 2.9 percent of the loss occurring since October of 2008. “Even though Missouri’s unemployment rate has stabilized, based on our surveys over the past several months, I expect the state’s jobless rate to climb by another 0.2 percent by the end of the year,” said Goss.

Nebraska: For the second consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, advanced above growth neutral. The October reading, based on a survey of supply managers, slumped to 51.6 from September’s 52.5. Components of the overall index for October were new orders at 51.0, production at 54.2, delivery lead time at 54.5, inventories at 40.7, and employment at 57.7. Since the national recession began in December 2007, Nebraska has lost 2.1 percent of its jobs with all of the losses occurring since October of 2008. “Even though Nebraska’s unemployment rate has recently declined, based on our surveys over the past several months, I expect the state’s jobless rate to climb by another 0.2 percent by the end of the year,” said Goss.

North Dakota: For a fourth straight month, North Dakota’s leading economic indicator climbed above growth neutral. The October reading sank to 53.9 from 57.8 in September. Components of the overall index for October were new orders at 47.9, production at 60.2, delivery lead time at 61.8, employment at 50.0, and inventories at 49.9. Since the national recession began in December 2007, North Dakota has increased its employment by 1.4 percent, but has lost 0.2 percent of its employment since October of 2008. “Even though North Dakota’s unemployment rate has recently dipped, based on our surveys over the past several months, I expect the state’s jobless rate to climb by another 0.3 percent by the end of the year,” said Goss.

Oklahoma: For a second straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers dropped below growth neutral. The Business Conditions Index, expanded to a weak 46.9 from September’ 45.0. Components of October’s overall reading were new orders at 51.2, production at 48.2, delivery lead time at 45.6, inventories at 35.4, and employment at 54.0. Since the national recession began in December 2007, Oklahoma has lost 2.0 percent of its employment with all of the loss occurring since October of 2008. “Even though the state’s unemployment rate has recently dipped, based on our surveys over the past several months, I expect the state’s jobless rate to climb by another 0.4 percent by the end of the year,” said Goss.

South Dakota: For a third month in the past four, South Dakota’s leading economic indicator climbed above growth neutral. The index, based on a survey of supply managers, dipped to 55.5 from 58.1 in September. Components of the overall index for October were new orders at 77.0, production at 73.9, delivery lead time at 45.8, inventories at 32.2, and employment at 48.5. Since the national recession began in December 2007, South Dakota has lost 2.0 percent of its employment with all of the losses occurring since October of 2008. “Even though South Dakota’s unemployment rate has declined recently, based on our surveys over the past several months, I expect the state’s jobless rate to climb above 5.0 percent by the end of the year,” said Goss.

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

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