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Mid-America Leading Economic Indicator Soars To Highest Level Since April 2007

Mid-America Leading Economic Indicator Soars To Highest Level Since April 2007

February survey results at a glance:

  • Leading economic indicator climbs to highest level in almost three years.
  • Job gains were reported for two straight months for the first time since July 2007.
  • Almost 30 percent of supply mangers expect prices to increase by more than 5 percent in the next six months. Less than 2 percent expect prices to decline.
  • Inventories expanded for the first time since September 2008.

Mid-America Leading Economic Indicator Soars
To Highest Level Since April 2007 

The February Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, rose for a third straight month pointing to improving economic growth in the months ahead. The index expanded to 61.0 from 54.7 in January and 50.3 in December. An index of 50.0 is considered growth neutral for the leading economic indicator.

“Readings over the past several months indicate that the regional economic rebound that is underway will pick up steam in the months ahead. Even so, I am concerned that the economic problems in Europe, which are pushing the value of the dollar higher, will negatively influence regional growth. This part of the nation depends heavily on agriculture, which likewise suffers from a “too strong” dollar. However, the likelihood of the regional economy dipping back into recessionary territory has diminished significantly according to our surveys of supply managers. While I expect the overall regional economy to expand in the months ahead, I continue to expect job growth to be subdued, especially for rural areas of the nine-state region,” Creighton University Economics Professor Ernie Goss said today.

For a second straight month, the regional employment index rose above growth neutral. The February job reading of 56.1 was up from January’s 51.7. For February, 23 percent of supply managers reported job gains for their firms while only 11 percent indicated that their firms reduced employment. “This is the first time that we have recorded two straight months of employment indices above growth neutral since July 2007. Despite this upturn, the regional labor market remains fragile with any upturn in hiring susceptible to national and global economic slumps,” 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 a ninth straight month to 78.3 from January’s 75.5 and December’s 65.2. “The prices-paid index has more than doubled over the past year. This month we asked supply managers how much they expect prices for products they purchase to change by in the next six months. Almost three of ten, or 29 percent, expect prices to expand by more than five percent in the next six months. Despite deflation warnings from some economists and policymakers, only 1 percent of supply mangers expect a cut in prices in the next six months,” said Goss.

“Recently the Federal Reserve took the timid step of increasing the almost inconsequential discount rate by a quarter of one percent. Based on responses from supply mangers in our survey and my own analysis, I expect the Fed to raise the more important funds rate by a quarter percent before the end of the second quarter of this year. Inflation in the pipeline is well above the Fed’s soft target of 2.0 percent in my judgment,” said Goss.

Looking ahead six months, economic optimism, captured by the February confidence index, climbed to a strong 73.0 from January’s 68.5 and December’s 69.5. “Record low interest rates, a stabilizing job market and the January improvement in the nation’s unemployment rate buoyed the economic optimism of supply managers in the Mid-America region,” said Goss.

An improving global economy continues to push exports higher. New export orders slipped to a still healthy 55.4 from 55.8 in January. The improving regional economy likewise rocketed imports to a higher 58.8 from January’s 50.0. “Since I expect exports to be an important ingredient of the regional economic recovery, recent increases in the value of the dollar, making U.S. goods less competitive abroad, are a concern for me. This month, we asked supply mangers to compare their international buying this year compared to last year. More than 35 percent indicated that buying abroad had expanded. Only 9.2 percent reported that international buying had declined from last year,” said Goss.

For the first time since September 2008, supply managers in the nine-state region increased their inventory levels. The February inventory index rose to 57.4 from January’s 48.3 and December’s 39.2. “After 16 straight months of inventory reductions, supply managers expanded their inventory levels at the fastest pace since August 2006. This restocking will positively affect growth in the months ahead,” said Goss.

Other components of the February Business Conditions Index were new orders at 66.1, up from January’s 57.4; production or sales at 67.3, up from 57.9; and delivery lead time unchanged from January’s 58.4.

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' Business Conditions Index for February, based on a survey of supply managers, climbed to 52.1 from January’s regional low 46.7. Components of the overall index for February were new orders at 43.3, production or sales at 61.8, delivery lead time at 61.3, inventories at 39.6, and employment at 54.5. “Over the past year, Arkansas has lost 14,000 manufacturing jobs, or more than 8.3 percent of its manufacturing job base. More than three fourths of the producer job losses were in durable goods manufacturing. Based on our surveys, I expect no more manufacturing job losses, and only modest overall job losses for the state in the second quarter of 2010,” said Goss.

Iowa: For the fifth time in the past seven months, Iowa’s Business Conditions Index rose above growth neutral. The index, a leading economic indicator from a survey of supply managers, jumped to 58.2 from January’s 52.1. Components of the overall index for February were new orders at 65.3, production or sales at 64.3, delivery lead time at 60.4, employment at 53.2, and inventories at 47.9. “Over the past year, Iowa has lost more than 17,000 manufacturing jobs, or more than 8 percent of its manufacturing job base. Almost 90 percent of the producer job losses were in durable goods manufacturing. Based on our surveys, I expect no more manufacturing job losses, and minimal overall job gains for the state in the second quarter of 2010,” said Goss.

Kansas: The leading economic indicator for Kansas from a survey of supply managers in the state advanced for a fourth consecutive month. The February Business Conditions Index rose to a tepid 50.8 from 47.4 in January. Components of the overall index for February were new orders at 54.3, production, or sales, at 53.8, delivery lead time at 55.1, employment at 34.8, and inventories at 56.7. “Over the past year, Kansas has lost almost 25,000 manufacturing jobs, or more than 12.0 percent of its manufacturing job base. Almost 95 percent of the producer job losses were in durable goods manufacturing. For the second quarter of 2010, based on our surveys, I expect minimal manufacturing job losses, and only modest overall job losses for the state,” reported Goss.

Minnesota: Minnesota's leading economic indicator, based on a survey of supply managers, advanced for February. The Business Conditions Index climbed to 57.4 from January’s 51.4. This was the seventh straight month that the state’s index has risen above growth neutral pointing to expanding economic conditions for the first half of 2010. Components of the overall index for February were new orders at 68.8, production, or sales, at 61.8, delivery lead time at 56.9, inventories at 44.5, and employment at 54.8. “Over the past year, Minnesota has lost almost 30,000 manufacturing jobs, or more than 8.5 percent of its manufacturing job base. Almost 90 percent of the producer job losses were among durable goods manufacturers. For the second quarter of 2010, based on our surveys, I expect minimal manufacturing job gains and very modest overall job gains,” said Goss.

Missouri: For an eighth consecutive month, Missouri’s Business Conditions Index was above growth neutral. The index from a survey of supply managers in the state, climbed to 55.5 from January’s 52.2. Components of the overall index from the February survey were new orders at 57.3, production, or sales, at 58.4, delivery lead time at 53.9, inventories at 57.8, and employment at 50.3. “Over the past year, Missouri has lost more than 18,000 manufacturing jobs, or almost 5.7 percent of its manufacturing job base. Almost three fourths of the producer job losses were among durable goods manufacturers. For the second quarter of 2010, based on our surveys, I expect minimal manufacturing job gains and very modest overall job gains for the state,” said Goss.

Nebraska: For a sixth consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, expanded above growth neutral. The February reading, based on a survey of supply managers, climbed to 58.8 from 54.2 in January. Components of the overall index for February were new orders at 62.8, production, or sales, at 60.0, delivery lead time at 60.4, inventories at 48.6, and employment at 61.1. “Over the past year, Nebraska has lost more than 8,000 manufacturing jobs, or almost 9 percent of its manufacturing job base. Almost 63.0 percent of the producer job losses were among durable goods manufacturers. For the second quarter of 2010 based on our surveys, I expect minimal manufacturing job gains and very modest overall job gains for the state,” said Goss.

North Dakota: For the third time in the past four months, North Dakota’s leading economic indicator moved below growth neutral 50.0. The February reading, based on a survey of supply managers in the state, sank to 48.3 from January’s 50.5. Components of the overall index for February were new orders at 36.9, production, or sales, at 60.0, delivery lead time at 50.7, employment at 42.2, and inventories at 53.1. “Over the past year, North Dakota has lost 2,300 manufacturing jobs, or almost 7 percent of its manufacturing job base. Almost 95 percent of the producer job losses were among durable goods manufacturers. For the second quarter of 2010 based on our surveys, I expect minimal manufacturing job losses and very modest overall job losses,” said Goss.

Oklahoma: For a second straight month, Oklahoma’s leading economic indicator stood above growth neutral. The Business Conditions Index, slipped to 52.3 from January’s 54.5. Components of February’s overall reading were new orders at 49.9, production, or sales, at 62.2, delivery lead time at 63.2, inventories at 47.8, and employment at 38.2. “Over the past year, Oklahoma has lost almost 15,000 manufacturing jobs, or almost 8 percent of its manufacturing job base. Almost 94 percent of the producer job losses were among durable goods manufacturers. For the second quarter of 2010, based on our surveys, I expect minimal manufacturing job losses and very modest overall job gains for the state,” said Goss.

South Dakota: South Dakota's leading economic indicator from a monthly survey of supply managers rose to 61.4 from January’s 54.4. Components of the overall index for February were new orders at 73.2, production, or sales, at 68.5, delivery lead time at 56.7, inventories at 58.3, and employment at 50.1. “Over the past year, South Dakota has lost almost 10,000 manufacturing jobs, or more than 21 percent of its manufacturing job base. For the second quarter of 2010, based on our surveys, I expect minimal manufacturing job gains and very modest overall job gains for the state. Exports will be an important ingredient of any South Dakota expansion. Thus the value of the dollar will play a significant role in the state’s economic fortunes,” said Goss.

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