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Mid-America Leading Economic Indicator Rebounds

Mid-America Leading Economic Indicator Rebounds

November survey results at a glance: 

  • Leading economic indicator points to modest economic growth in the months ahead.
  • Inflationary pressures are a continuing concern. Supply managers expect 6.6 percent annualized growth over the next six months for producer prices.
  • • Business confidence bounces higher encouraging inventory buildups.

Mid-America Leading Economic Indicator Rebounds:
Purchasers Expect Producer Prices to Growth at 6.6 Pace

For only the second time since May of this year, the Business Conditions Index for the nine-state Mid-America region advanced. According to recent surveys of supply managers, including those for November, the region will likely continue to grow at a slow to modest pace in the months ahead.

Overall index: The index, a leading economic indicator which ranges between 0 and 100, expanded to 55.9 from October’s 52.3. This is the 12th consecutive month that the index has risen above growth neutral. An index of 50.0 is considered growth neutral. Over the past year, the Mid-America index has normally exceeded the national reading (www.ism.ws). The overall index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time.

“Strength in the region’s agricultural and energy sectors is spilling over into the rest of the area economy. For example, farmers have stepped up their buying of agricultural equipment, which has bolstered growth among the manufacturers and sellers of farm equipment and trucks. Unless the debt problems of Portugal, Ireland and Spain spill over into the rest of the Euro Zone, I expect strong agricultural income to continue to drive the Mid-America economy forward. However, any economic contagion that strikes Germany and France would weaken the Euro, strengthen the dollar and negatively impact U.S. agriculture and energy commodity prices,” Creighton University Economics Professor Ernie Goss said today.

Employment: For an 11th straight month, the regional employment index remained above growth neutral. However, the November job reading climbed to a fragile 53.0 from 50.6 in October. For November, 21.2 percent of firms reported increases in employmen,t while 15.3 percent detailed pullbacks in company employment levels. “Relative job growth shows clearly that the Mid-America region is outperforming the nation. For 2010, the Mid-America region is on track to add jobs at a pace of 1.3 percent while the U.S. will gain jobs at a much weaker 0.8 percent rate. I expect this gap to continue into the first quarter of 2011,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, slipped to a still inflationary 64.7 from 69.9 in October. This was the 18th straight month that the survey’s inflation gauge climbed above growth neutral. “This month we asked supply managers how much they expect prices on products they buy to change in the next six months. On an annualized basis, supply managers anticipate a 6.6 percent increase in prices. This is up from 5.0 percent in July of this year, when we asked this same question. I expect this increase at the producer level to bolster consumer prices well above the Federal Reserve’s target rate of 2.0 percent, sometime in 2011,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the November business confidence index, rose to 67.8 from October’s 62.0 and September’s 51.6. “This is the second straight significant increase in the confidence index. While the overall U.S. economy remains weak, as gauged by unemployment rates, individual firms in the Mid-America region are experiencing solid improvements in business conditions. This is translating into a strong economic outlook,” said Goss.

Inventories: For the tenth time in the past eleven months, supply managers in the nine-state region expanded inventory levels. The November inventory index soared to 59.7 from October’s weak 48.3. “This time last year, supply managers were cutting inventories, and the November 2009 inventory index was 43.6. A stronger sales outlook is pushing supply managers to add to inventories,” said Goss.

Trade: The November new export orders slipped to 50.8 from 51.9 in October. The region’s import reading improved slightly from October’s 50.7 to 51.4 for November. “Only 8.2 percent of supply managers indicated that their international buying had grown over the past three months. The trade numbers were the most surprising and disappointing of the results from the November survey,” said Goss.

Other components: Other components of the November Business Conditions Index were new orders at 54.5, up from October’s 50.0; production or sales at 56.8, up from 52.8; and delivery lead time at 55.6, down from 59.7.

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. T

he 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, based on a survey of supply managers, climbed to a healthy level for the month. The Arkansas Business Conditions Index for November increased for a second straight month to 61.9 from October’s 61.3. Components of the overall index for November were new orders at 57.6, production or sales at 73.4, delivery lead time at 69.8, inventories at 53.0 and employment at 55.7. “Both durable and nondurable goods producers report solid improvements in business activity. Durable or heavy manufacturers are experiencing sharp upturns in growth and growth prospects,” said Goss.

Iowa: For an eleventh straight month, Iowa’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator from a survey of supply managers, slumped to a still solid 54.7 from 60.2 in October. Components of the overall index for November were new orders at 52.9, production or sales at 54.0, delivery lead time at 64.8, employment at 53.0 and inventories at 48.8. “Durable goods producers in Iowa are reporting the strongest growth among heavy manufacturers in the region. Agricultural equipment manufacturing is experiencing very strong upturns in business activity On the other hand, nondurable goods manufacturers, particularly food producers, are experiencing pullbacks in economic activity. However, the positives are definitely outweighing the negatives in the state economy. I expect continuing economic progress well into 2011 for the state, even as the unemployment rate remains unacceptably high,” said Goss.

Kansas: The leading economic indicator for Kansas from a survey of supply managers declined slightly for the month but was above growth neutral for the fourth straight month. The November Business Conditions Index slipped to 50.8 from 55.1 in October. Components of the overall index for November were new orders at 58.6, production or sales at 57.7, delivery lead time at 54.3, employment at 35.8 and inventories at 48.9. “Contrary to most of the region, Kansas nondurable goods producers are outperforming durable goods manufacturers. The state’s aircraft and parts producers continue to experience weak economic conditions,” said Goss.

Minnesota: For the first time since June, Minnesota’s leading economic indicator, based on a survey of supply managers, rose. The state’s Business Conditions Index climbed to a healthy 56.2 from October’s 52.8. The November survey represented the 16th straight month that Minnesota's index was above growth neutral. Components of the overall index for November were new orders at 57.7, production or sales at 61.1, delivery lead time at 48.2, inventories at 64.9 and employment at 49.1. “Both durable and nondurable goods producers in the state are experiencing very healthy business conditions with increases in both domestic and export sales. Computer and electronic component producers are reporting improving economic conditions,” said Goss.

Missouri: For the 17th straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index, based on a survey of supply managers in the state, grew to 56.6 from October’s tepid 52.2. Components of the overall index from the November survey were new orders at 51.6, production or sales at 56.3, delivery lead time at 61.2, inventories at 59.7 and employment at 54.3. “Nondurable goods producers. including food processors. are reporting little growth in business activity. At the same time, vehicle and vehicle-linked firms are adding few jobs in the state. Most growth in the state is coming from value-added service providers, such as telecommunications firms,” said Goss.

Nebraska: After declining below growth neutral for October, Nebraska’s Business Conditions Index, a leading economic indicator, once again moved above growth neutral 50.0. The November reading, based on a survey of supply managers, increased to 52.1 from 49.8 in October but was well below September’s 57.3. Components of the overall index for November were new orders at 53.9, production or sales at 52.4, delivery lead time at 54.9, inventories at 48.9 and employment at 56.6. “Durable goods producers’ growth and growth prospects are exceeding that of nondurable goods manufacturers. The state’s large food processing sector is detailing slow to no growth,” stated Goss.

North Dakota: The state’s leading economic indicator remained above growth neutral. The overall Business Conditions Index, based on a survey of supply managers in the state, rose slightly to 52.2 from 51.4 in October. Components of the overall index for November were new orders at 51.9, production or sales at 46.2, delivery lead time at 60.7, employment at 53.0,and inventories at 49.2. “After growing at a much faster pace than the rest of the region, the gap between the growth in North Dakota and other Mid-America manufacturers, both durable and nondurable, has definitely closed. Even though I expect growth to continue to be positive for the state, I expect it to slow well into 2011, based on our monthly survey,” said Goss.

Oklahoma: For the 11th straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers remained above growth neutral. The Business Conditions Index slumped to a still regional high of 66.3 from 75.2 in October. Components of November’s overall reading were new orders at 71.5, production or sales at 68.1, delivery lead time at 75.1, inventories at 62.8 and employment at 54.1. “Nondurable manufacturers in Oklahoma, particularly food processors and energy-related firms, continue to experience healthy growth. On the other hand, durable goods manufacturers in the state experienced pullbacks in economic activity over the past several months. While I expect positive growth for the state in the months ahead, it is unlikely to match the rapid pace experienced by the state over the past six months,” stated Goss.

South Dakota: The state’s leading economic indicator continues to point to positive economic growth in the months ahead. The overall Business Conditions Index and based on a survey of supply mangers in the state, declined to a still healthy 57.8 from 61.3 in October. Components of the overall index for November were new orders at 52.9, production or sales at 65.7, delivery lead time at 49.2, inventories at 60.8 and employment at 60.5. “The expansion of manufacturing in the state has pushed overall economic growth in the state into a very healthy range over the past half year. However, I expect the pace of growth in the state, which has been quite strong over the past six months, to slow somewhat in the months ahead,” said Goss.

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