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Mid-America Leading Economic Indicator Declines Again

Mid-America Leading Economic Indicator Declines Again

  Interview with Ernie Goss

July survey results at a glance:

  • Leading economic indicator declines but still at a healthy level.
  • For the remainder of 2010, one-third of supply managers expect new hiring, while 13 percent anticipate layoffs.
  • Business confidence declines to lowest level since February 2009.
  • Inflation gauge dips again.

Mid-America Leading Economic Indicator Declines Again:
Economic Confidence Plummets

The July Business Conditions Index for the Mid-America region dipped to a still healthy level pointing to an expanding regional economy in the months ahead, according to the monthly Business Conditions survey of supply managers in the nine-state region. Surveys over the past several months indicate a continuation of the economic recovery, albeit at a slower pace.

The index dipped to 60.8 from 62.5 in June and 64.2 in May. An index of 50.0 is considered growth neutral for the leading economic indicator. This was the eighth straight month that the index was above growth neutral.

“Surveys over the past several months indicate that the economic recovery, which has been underway since last fall, will continue but at a weaker rate. I am concerned about some of the elements of our July survey. For example, while the new orders index remained above growth neutral, it took its biggest one month tumble in more than 10 years,” Creighton University Economics Professor Ernie Goss said today.

For a seventh straight month, the regional employment index climbed above growth neutral. The July job reading advanced to 58.8 from June’s 58.3. This month supply managers were asked whether their firms would be hiring in the next six months. Only 13 percent of respondents expect layoffs while one-third anticipate new hiring for the rest of the year. This is a significant improvement from November 2009 and January 2010 when 41 percent and 24 percent, respectively, expected layoffs in the subsequent six-month period. “Clearly the labor market has improved significantly in 2010 from 2009 levels according to the firms in our survey,” said Goss.

Contrary to the national economy, more individuals are working in Mid-America today than one year ago. The region added jobs at an annualized rate of 1.7 percent for the first half of the year. “While I do expect job growth in the second half of 2010, the rate will be down from the first half. Unemployment rates will remain unacceptably high,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

The prices-paid index, which tracks the cost of raw materials and supplies, slumped for the month, but remained above growth neutral for a 14th straight month at 64.1 from June’s 68.8 and May’s 80.4. “Even though our inflation gauge remains high, we are tracking declining inflationary pressures in the pipeline,” said Goss.

Supply managers were asked to gauge price changes for products that they buy over the next half year. More than one in 10 expect price increases of more than 6 percent in the next six months while an equal percentage expect price declines. “In February of 2010, only 1 percent of supply managers expected a decline in prices over the subsequent six months. Inflationary pressures are clearly declining according to supply managers in our survey,” said Goss.

Looking ahead six months, economic optimism, captured by the July confidence index, slumped to 54.8, its lowest level since February 2009 and down from 59.4 in June and 69.0 in May. “Even as the economy improves, it is evident that supply managers are becoming less confident about the economy six months down the road,” said Goss.

Trade numbers for July reflect a softer economic recovery. The July new export orders plunged to 51.0 from June’s 60.9. Supply managers reported a slower pace of growth in imports with a July index of 54.0 from June’s index of 54.9 and May’s 63.2.

For a sixth consecutive month, supply managers in the nine-state region increased inventory levels. The July inventory index expanded to 55.7 from June’s 55.1. “The growth in inventories has been a positive and significant factor pushing the regional economy higher. However, we need to see an increase in the pace of consumer buying before we can be assured that the recovery will continue at a solid pace. Inventory buildups are not the basis for sustained economic growth,” said Goss.

Other components of the July Business Conditions Index were new orders at 53.1, down from June’s 67.0; production or sales at 58.0, down from 70.6; and delivery lead time at 78.7, up from 61.4 in June.

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: Arkansas’ leading economic indicator based on a survey of supply managers continues to point to growth in the months ahead, albeit at a slower pace. The Arkansas Business Conditions Index for July declined for the fourth straight month to 50.5 from June’s 55.9 and May’s 56.8. Components of the overall index for July were new orders at 42.6, production or sales at 53.3, delivery lead time at 62.9, inventories at 43.8, and employment at 49.6. “Durable goods manufacturers in Arkansas are adding jobs and increasing the hours worked of current employees. This is pushing the state economy forward. However, that push has weakened over the past several months. As a result, I expect second half job growth in the state to decline from its current annualized rate of over 2 percent to just over 1 percent,” said Goss.

Iowa: For the seventh straight month, Iowa’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator from a survey of supply managers, slipped to a regional high of 68.2 from June’s 70.1 and May’s 70.3. Components of the overall index for July were new orders at 81.0, production or sales at 79.2, delivery lead time at 57.7, employment at 62.4, and inventories at 60.7. “Iowa durable goods producers are reporting upturns in hiring and hours worked for current employees. This is now pushing the overall state economy forward. I expect second half job growth in the state to match first half annualized growth of 2.3 percent,” said Goss.

Kansas: The leading economic indicator for Kansas declined for a second consecutive month. The July Business Conditions Index from the monthly survey of supply managers in the state slipped to 49.3 from June’s 51.1. Components of the overall index for July were new orders at 44.0, production, or sales, at 49.1, delivery lead time at 59.0, employment at 53.2, and inventories at 41.4. “Kansas was the only state to record an overall index below growth neutral for July. In recent months, durable goods producers in the state have reported pullbacks in economic activity. These declines are spilling over into the overall economy. As a result, I expect overall job growth in the second half of 2010 to decline from current annualized growth of 1.4 percent to roughly half that pace,” said Goss.

Minnesota: As in recent months, Minnesota’s leading economic indicator, based on a survey of supply managers, points to advancing economic conditions ahead. The July Business Conditions Index dipped slightly to 64.4 from June’s 65.5. This was the 12th straight month that Minnesota's index was above growth neutral. Components of the overall index for July were new orders at 64.6, production, or sales, at 65.9, delivery lead time at 60.8, inventories at 63.6, and employment at 67.1. “Economic signals from businesses across the state remain positive. Manufacturers, both durable and nondurable, are reporting healthy growth in business. This expansion has spilled over into the rest of the state economy. As a result, I expect second half job growth in Minnesota to match annualized growth of 2.0 percent in the first half,” said Goss.

Missouri: For the 13th straight month, Missouri’s Business Conditions Index remained above growth neutral. However, the July index from a survey of supply managers slipped to 53.8 from June’s 58.5. Components of the overall index from the July survey were new orders at 53.7, production, or sales, at 56.4, delivery lead time at 53.8, inventories at 52.2, and employment at 52.8. “For the first half of 2010, Missouri’s unemployment rate declined by one half of a percentage point and the state added almost 11,000 jobs. Based on our survey results, I expect the jobless rate to change very little in the second half of 2010, even as Missouri doubles its rate of job growth,” said Goss.

Nebraska: For an 11th consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, remained above growth neutral. The July reading from a survey of supply managers sank to 62.9 from June’s 65.3. Components of the overall index for July were new orders at 66.9, production, or sales, at 72.0, delivery lead time at 62.0, inventories at 55.1, and employment at 58.6. “In recent months, growth among durable goods producers has more than offset pullbacks among nondurable goods manufacturers, especially food producers. The state’s manufacturing sector will boost overall state growth in the months ahead. For the first half of 2010, Nebraska’s unemployment rate rose by 0.2 percent even as the state added jobs at an annualized pace of 1.8 percent. I expect the pace of job growth to decline to an annualized rate of slightly over 1 percent with the unemployment rate stabilizing at its current level,” said Goss.

North Dakota: North Dakota’s leading economic indicator once again moved above growth neutral. The index, based on a survey of supply managers in the state, climbed to 57.6 from June’s 54.6. Components of the overall index for July were new orders at 47.8, production, or sales, at 53.4, delivery lead time at 66.4, employment at 64.6, and inventories at 55.6. “For 2010, North Dakota has enjoyed the best job market in the nine-state region with the state’s jobless rate declining by 0.7 percent and the economy adding jobs at an annualized rate of 2.8 percent. While I expect North Dakota to continue to grow for the second half of 2010, the gap between North Dakota and the region will narrow as the state’s unemployment rate plateaus and job growth slows to a still healthy 1.5 percent annualized rate,” said Goss.

Oklahoma: For a seventh straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers climbed above growth neutral. The July Business Conditions Index was a still strong 61.6, though down from June’s 67.4. Components of July’s overall reading were new orders at 63.5, production, or sales, at 54.7, delivery lead time at 72.0, inventories at 54.7, and employment at 52.5. “For the first half of 2010, Oklahoma added jobs at an annualized rate of 2 percent even as businesses expanded the work hours of current employees. Oklahoma’s job growth has been well above the pace of the nation and the region. I expect the gap between Oklahoma and the nation to narrow in the second half as expansions from the significant inventory buildup wanes,” said Goss.

South Dakota: South Dakota’s leading economic indicator continues to point to continuing economic expansion. The index, based on a survey of supply mangers, dipped slightly to 66.6 from 66.8 in June. Components of the overall index for July were new orders at 70.8, production, or sales, at 69.8, delivery lead time at 66.5, inventories at 63.6, and employment at 62.5. “The state’s manufacturing sector has continued to expand at a solid pace. This has spilled over into the rest of the economy with the state’s unemployment rate declining by 0.2 percent and employers increasing the hourly work week significantly in 2010. I expect South Dakota to continue to add jobs at an annualized rate of slightly over 1 percent in the second half of 2010,” said Goss.

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