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October Mid-America Leading Economic Indicator Down

October Mid-America Leading Economic Indicator Down

October survey results at a glance:

  • Leading economic indicator declined for the fourth time in the past five months.
  • Very weak job growth. Supply managers expect a two percent wage increase in 2011.
  • Inflationary pressures a continuing concern.
  • Inventory led growth ends.

October Mid-America Leading Economic Indicator:
Lowest Since December 2009

For the fourth time in the past five months, the Business Conditions Index for the nine-state Mid-America region declined. According to recent surveys of supply managers, including this one, the region will likely continue to grow, but at a slower pace.

Overall index: The index, a leading economic indicator which ranges between 0 and 100, plummeted to 52.3 for October from September’s 56.3. This is the lowest reading for the region since December of last year. An index of 50.0 is considered growth neutral. This was the 11th straight month that the regional index has risen above 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.

“Since July, the leading economic indicator has been trending downward and indicates slower growth in the months ahead. Even so, surveys are not pointing to a double dip recession. However as I stated last month, it is very important that Congress and the administration move quickly to head off the massive tax increase slated to hit U.S. workers beginning with their first pay check in 2011. This increase could push the fragile regional economy back into a recession,” Creighton University Economics Professor Ernie Goss said today.

Employment: For the 10th straight month, the regional employment index remained above growth neutral. However, the October job reading dipped again to a frail 50.6 from September’s 53.2. For October, 19.4 percent of firms reported increases in employment while 19.2 percent detailed pullbacks in company employment levels. This month supply managers were asked how much of a pay raise they expected for 2011. “While a 2 percent raise, as reported by survey participants, is indicative of the weak labor market, it is a full percentage point higher than expectations last year at this time when we asked the same question,” said Goss.

In terms of job growth, the regional picture began to wilt in May. Between December 2009 and May 2010, the region added more than 100,000 jobs. However since May, the region lost approximately 14,000 jobs. Our surveys over the past several months, point to positive but very weak job growth in the months ahead,” 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 69.9 from September’s 71.1. This was the 17th straight month that the survey’s inflation gauge climbed above growth neutral. “Based on our survey results, as well as other surveys of supply managers, I expect inflation to rise well above the Federal Reserve’s (Fed) target. Once the economy gets back on track, inflation and price bubbles will be a bigger problem than currently expected. Current massive purchases of inflation protected Treasury bonds indicate that investors also expect significant boosts in inflation. Unfortunately, this week the Fed will announce another round of quantitative easing which will push inflationary pressures even higher sometime in 2011,” said Goss.

Confidence: Looking ahead six months, economic optimism, captured by the October business confidence index, soared to 62.0 from September’s 51.6 and August’s 52.4. “This is the first increase in the confidence index since April of this year and one that I did not anticipate. Very healthy farm income and record low interest rates combined to boost the economic outlook for firms in the region,” said Goss.

Inventories: For the first time since January of this year, supply managers in the nine-state region reduced inventory levels. The October inventory index slumped to 48.3 from 56.3 in September. “Since the beginning of the year, the percentage of firms reporting that their inventories were too high has increased by 10 percent. This is a concern since a significant share of the 2010 economic expansion can be traced to firms restoring their inventory levels. In order to restore growth to levels experienced in the first half of 2010, we need to begin to recording increases in consumer spending and business capital purchases,” said Goss.

Trade: Trade numbers over the past several months mirror the slow growth economy. The October new export orders inched higher to 51.9 from September’s 50.0. The region’s import reading improved slightly from September’s 50.7 to 50.9 for October. “Both imports and exports have slumped over the past several months as growth in both the global and domestic economy has cooled,” said Goss.

Other components: Other components of the October Business Conditions Index were new orders at 50.0, down from September’s 56.0; production or sales at 52.8, down from 57.9; and delivery lead time at 59.7, up from 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: The Arkansas Business Conditions Index for October increased for a second straight month to a robust 61.3 from September’s 52.6 and August’s 50.2. Components of the overall index for October were new orders at 52.8, production or sales at 71.8, delivery lead time at 64.6, inventories at 56.0, and employment at 61.4. “After gaining 5,400 jobs between December 2009 and May 2010, Arkansas lost almost 4,000 jobs between May and September. If we continue to record solid readings for the state in our surveys of supply managers, I expect job growth to once again be in the positive range in the months ahead,” said Goss.

Iowa: For the 10th 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 60.2 from September’s 61.3. Components of the overall index for October were new orders at 64.9, production or sales at 62.1, delivery lead time at 65.9, employment at 56.1, and inventories at 52.1. “After gaining more than 20,000 jobs between December 2009 and May 2010, Iowa lost more than 9,000 jobs between May and September. If we continue to record solid readings for the state in our surveys of supply managers, I expect job growth to once again be in the positive range in the months ahead,” 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 third straight month. The October Business Conditions Index dipped to 55.1 from September’s 55.5. Components of the overall index for October were new orders at 67.3, production or sales at 65.4, delivery lead time at 58.5, employment at 38.3, and inventories at 47.9. “After gaining more than 10,000 jobs between December 2009 and May 2010, Kansas lost almost 1,500 jobs between May and September. Firms in the state are growing their sales without adding to their payrolls. I expect job growth to be flat to slightly negative in the months ahead,” said Goss.

Minnesota: For a fourth consecutive month Minnesota’s leading economic indicator, based on a survey of supply managers, declined thus pointing to somewhat slower but still positive growth in the months ahead. The state’s Business Conditions Index plummeted to 52.8 from September’s 58.9. October represented the 15th straight month that Minnesota's index was above growth neutral. Components of the overall index for October were new orders at 51.0 production, or sales at 57.8, delivery lead time at 49.9, inventories at 53.4, and employment at 51.7. “After gaining almost 32,000 jobs between December 2009 and May 2010, Minnesota’s employment level has remained virtually unchanged since May. I expect very modest job gains in the months ahead as durable goods producers benefit from sales abroad,” said Goss.

Missouri: For the 16th straight month, Missouri’s Business Conditions Index was above growth neutral. The index slipped to 52.2 from 52.9 in September. Components of the overall index from the October survey were new orders at 48.1, production, or sales at 50.5, delivery lead time at 59.0, inventories at 53.4, and employment at 50.3. “After gaining more than 7,000 jobs between December 2009 and May 2010, Missouri lost more than 12,000 jobs between May and September. Our surveys of supply managers in the state show no signs of any significant upturn in hiring in the near term,” said Goss.

Nebraska: For the first time since August 2009, Nebraska’s Business Conditions Index, a leading economic indicator, slumped below growth neutral. The October reading based on a survey of supply managers plunged to 49.8 from September’s 57.3. Components of the overall index for October were new orders at 50.1, production or sales at 51.5, delivery lead time at 59.9, inventories at 45.9, and employment at 54.5. “After gaining more than 8,000 jobs between December 2009 and May 2010, Nebraska lost almost 3,300 jobs between May and September. I expect the state to continue to lose jobs, albeit at a slower pace, in the near term,” said Goss.

North Dakota: North Dakota’s leading economic indicator remained above growth neutral. The index, based on a survey of supply managers in the state, dipped slightly to 51.4 from September’s 52.7. Components of the overall index for October were new orders at 49.7, production or sales at 47.3, delivery lead time at 64.4, employment at 51.0, and inventories at 44.5. “After gaining more than 4,000 jobs between December 2009 and May 2010, the state lost almost 1,000 jobs between May and September. I expect job growth for the state to be flat to slightly negative in the near term,” said Goss.

Oklahoma: The Business Conditions Index soared to a regional high 75.2 from September’s 60.4. For the 10th straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers remained above growth neutral. Components of October’s overall reading were new orders at 85.0, production or sales at 81.1, delivery lead time at 88.2, inventories at 76.6, and employment at 46.2. “Oklahoma and South Dakota are the only states in the nine-state region to gain jobs for both time periods; December 2009 to May 2010 and May 2010 to September 2010. Even though our employment reading for the state has been below growth neutral for several months, I expect the state to continue to add jobs in the months ahead,” said Goss.

South Dakota: South Dakota’s leading economic indicator continues to point to a healthy economic expansion. However, the overall index, based on a survey of supply mangers in the state, declined to a healthy 61.3 from September’s 70.2. Components of the overall index for October were new orders at 55.7, production or sales at 67.1, delivery lead time at 55.6, inventories at 57.3, and employment at 71.0. “Oklahoma and South Dakota are the only states in the nine-state region to gain jobs for both time periods; December 2009 to May 2010 and May 2010 to September 2010. I expect the state to continue to add jobs in the months ahead at somewhat lower rate,” said Goss.

Follow Goss on twitter at http://twitter.com/erniegoss

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