Regional Economy on Expansion Path
January survey results at a glance:
- Leading economic indicator rises above growth neutral.
- The employment index indicates slight job additions for January.
- Inventories declined for the 16th straight month but pullbacks are slowing.
- Inflation gauge is more than double January 2009’s level.
Regional Economy on Expansion Path
But with Elevated Inflationary Pressures
The January Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, rose to a healthy level. The index expanded to 54.7 from December’s 50.3 and November’s 47.5. An index of 50.0 is considered growth neutral.
Readings over the past several months indicate that the regional economic recovery is picking up steam, albeit at a subdued pace. “While results from the January survey are encouraging, surveys over the past several months point to an economic recovery that is fragile. However, the likelihood of dipping back into recessionary territory has diminished significantly according to our surveys of supply managers. Supply managers are the ‘canary in the coal mine’ for the economy and they are indicating economic expansion in the months ahead. Economic conditions remain less healthy for rural areas of the nine-state region,” Creighton University Economics Professor Ernie Goss said today.
The regional employment index rose above growth neutral for the month. The January reading of 51.7 was up from 47.6 in December, and 46.1 in November. For January 13 percent of supply managers reported job losses and 17 percent indicated their firms increased employment. “This month and in November 2009, we asked supply managers what their layoff expectations are for 2010. Between November and January the percentage of supply managers expecting layoffs in 2010 declined from 41 percent to 24 percent. The number expecting a pay increase in 2010 rose from 48 percent in November to 53 percent in January. While I would not call this a surge, it clearly reflects an improving job market,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Rebounding prices have accompanied job losses for the region. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for an eighth straight month to 75.5 from December’s 65.2. “The prices-paid index has more than doubled over the past year. At its January meeting, the Federal Reserve interest rate setting committee said it expects subdued inflation trends ‘which warrant exceptionally low levels of the federal funds rate for an extended period.’ Supply manager surveys over the last several months run contrary to the Fed’s projection. I expect inflation at the consumer level to top 3.3 percent as early as the middle of 2010. This is a full percentage point above the Fed’s acceptable level,” said Goss.
Looking ahead six months, economic optimism, captured by the January confidence index, dipped to a still strong 68.5 from December’s 69.5. “Record low interest rates, improving housing markets and stabilizing unemployment rates are keeping the economic optimism high among supply managers in the Mid-America region,” said Goss.
An improving global economy continues to push exports higher. New export orders advanced to 55.8 from 51.9 in December and 50.0 in November. On the other hand, imports rose to 50.0 from December’s 48.5 and November’s 47.8. “Exports will be an important component of any significant 2010 economic rebound,” said Goss.
Supply managers in the nine-state region continue to reduce inventories. The January inventory index soared to a still weak 48.3 from December’s 39.2. “This is the 16th 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 of raw materials and supplies. Any significant restocking will be a very positive factor for the regional economy,” said Goss.
Other components of the January Business Conditions Index were new orders at 57.4, up from 55.5 in December; production or sales at 57.9, up from 54.4; and delivery lead time at 58.4, up from 54.7.
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.
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 Arkansas Business Conditions Index for January, based on a survey of supply managers, climbed to 46.7, a regional low, from December’s 39.4 and November’s very weak 33.1. Components of the overall index for January were new orders at 49.0, production or sales at 48.7, delivery lead time at 60.0, inventories at 29.3, and employment at 46.5. “For January durable goods producers experienced stabilizing business while nondurable goods manufacturers detailed continuing pullbacks in economic activity,” said Goss.
Iowa: For the fourth time in the past six months, Iowa’s Business Conditions Index rose above growth neutral. The index, a leading economic indicator from a survey of supply managers, climbed to 52.1 from December’s 49.2. Components of the overall index for January were new orders at 52.1, production or sales at 57.1, delivery lead time at 56.4, employment at 49.1, and inventories at 45.8. “Despite the upturn in overall business conditions, both durable and nondurable goods manufacturers in the state experienced losses of employment for the month. Truckers in Iowa have yet to benefit from an improving state economy,” said Goss.
Kansas: The leading economic indicator for Kansas advanced for a third consecutive month. The January Business Conditions Index rose to a weak 47.4 from 44.8 in December from 42.1 in November. Kansas was one of two states to record a reading below growth neutral. Components of the overall index for January were new orders at 58.7, production, or sales, at 45.0, delivery lead time at 47.8, employment at 36.2, and inventories at 50.8. “While improvements were recorded for nondurable goods producers, durable goods manufacturing continue to experience downturns in business activity. I do expect significant upturns in new orders for aircraft producers in 2010 as the global economy expands,” said Goss.
Minnesota: Minnesota's leading economic indicator, based on a survey of supply managers, slipped for January. The Business Conditions Index sank to 51.4 from December’s 53.5 and November’s 57.1. This was the sixth straight month that Minnesota's index was above growth neutral, pointing to expanding economic conditions for the first half of 2010. Components of the overall index for January were new orders at 55.8, production, or sales, at 55.3, delivery lead time at 51.3, inventories at 43.3, and employment at 51.3. “According to government data, Minnesota added almost 5,000 temporary jobs via employment agencies over the past six months of 2009. This compares to 3,000 temporary jobs lost for the same period of 2008. This and our monthly survey point to a state economy on the mend with permanent job gains for the first quarter of 2010. Even so, I expect the employment gains to be very modest,” said Goss.
Missouri: For a seventh consecutive month, Missouri’s Business Conditions Index was above growth neutral. The index from a survey of supply managers in the state, climbed to 52.2 from December’s 50.1 and November’s 50.6. Components of the overall index from the January survey were new orders at 50.8, production, or sales, at 50.1, delivery lead time at 55.1, inventories at 54.6, and employment at 50.6. “We are seeing improving business conditions among manufacturers in the state, both durable and nondurable goods producers. January business activity was much healthier for food producers in the state,” said Goss.
Nebraska: For a fifth consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, expanded above growth neutral. The January reading, based on a survey of supply managers, climbed to 54.2 from 50.2 in December and 50.6 in November. Components of the overall index for January were new orders at 59.7, production, or sales, at 55.5, delivery lead time at 61.2, inventories at 38.8, and employment at 55.6. “Except for computer and electronic component manufacturers, durable and nondurable goods producers in the state experienced upturns in January business activity. Food producers are encountering improving economic conditions,” said Goss.
North Dakota: After two months of moving below growth neutral, North Dakota’s leading economic indicator expanded above 50.0. The January reading, based on a survey of supply managers, climbed to 50.5 from December’s 44.3 and November’s 48.4. Components of the overall index for January were new orders at 40.4, production, or sales, at 57.5, delivery lead time at 51.5, employment at 46.9, and inventories at 56.8. “The rest of the region is catching up, economically speaking, to North Dakota. Durable goods producers experienced a much better January than nondurable goods manufacturers, ” said Goss.
Oklahoma: For the first time since August of last year, Oklahoma’s leading economic indicator climbed above growth neutral. The Business Conditions Index advanced to 54.5 from December’s 43.0 and November’s 49.4. Components of January’s overall reading were new orders at 49.7, production, or sales, at 49.4, delivery lead time at 76.4, inventories at 45.5, and employment at 51.5. “Except for food producers in the state, nondurable goods manufacturers reported weak economic activity for January. On the other hand, durable goods producers are experiencing solid upturns in economic activity. Both sectors continue to add few jobs even as the economic outlook improves,” said Goss.
South Dakota: South Dakota's leading economic indicator from a monthly survey of supply managers rose to 54.4 from 46.0 in December and 50.2 in November. Components of the overall index for January were new orders at 63.0, production, or sales, at 62.1, delivery lead time at 55.1, inventories at 41.5, and employment at 50.3. “Manufacturing in South Dakota has stabilized with January activity up slightly from December. I expect continuing growth for the state’s computer and electronic component manufacturers for 2010,” said Goss.