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Mid-America Leading Economic Advances for First Time Since May

Mid-America Leading Economic Advances for First Time Since May

September survey results at a glance:

  • Leading economic indicator increases for first time since May.
  • Business confidence continues to slump.
  • Approximately one out of five firms expect this year’s holiday sales to be up from last year by more than 5 percent.
  •  Approximately one out of 10 firms anticipate this year’s holiday sales to be down from last year by more than 5 percent.
  • Inflationary pressures on the rise again. For Immediate Release: Oct. 1, 2010

Mid-America Leading Economic Advances for First Time Since May:
No Double-Dip as Outlook Improves

The September Business Conditions Index for the Mid-America region climbed for the first time since May of this year. According to the September survey of supply managers in the nine-state region, the region will experience improving economic conditions in the months ahead with little likelihood of a double dip recession.

Overall index: The index, a leading economic indicator which ranges between 0 and 100, rose to 56.3 from 55.8 for August and 60.8 for July. An index of 50.0 is considered growth neutral. This was the 10th 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) “Results from our survey over the past year are similar to that expected from exiting a recession. However, coming out of the 2001 recession U.S. workers experienced cuts in federal tax rates. Unless Congress and the administration move quickly, U.S. workers are facing a mammoth tax increase on Jan. 1, 2011. This increase will restrain economic growth in the U.S. and the region,” Creighton University Economics Professor Ernie Goss said today.

Employment: For a ninth straight month, the regional employment index remained above growth neutral. However, the September job reading dipped again to a less than stellar 53.2 from 55.2 in August and 58.8 in July. For September, 22.3 percent of firms reported increases in employment while 16.0 detailed pullbacks in company employment levels. “During the official national recession, the region lost almost 465,000 jobs. Since the recession officially ended in June 2009, the region has added less than 24,000 jobs. In terms of jobs, I do not expect the region to be back to pre-recession levels until the first quarter of 2012,” 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, advanced to 71.1, its highest level since May, and well above 64.6 in August. This was the 16th 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 still think deflation worries are overblown. Once the economy gets back on track, inflation and price bubbles will be the problem, not deflation,” said Goss.

Confidence: Looking ahead six months, economic optimism, captured by the September business confidence index, slipped to 51.6 from 52.4 in August. “Every month since April of this year, our regional confidence index has moved lower. The level of economic uncertainty clearly influenced the economic outlook of supply managers,” said Goss.

Inventories: For an eighth consecutive month, supply managers in the nine-state region increased inventory levels. The September inventory index expanded to 56.3 from 51.9 in August. “A significant share of the 2010 economic expansion can be traced to firms restoring their inventory levels. However, the national and regional economies cannot continue to rely on this factor to generate growth. Consumer spending and business capital purchases are going to have to fill the void,” said Goss.

Trade: Trade numbers over the past several months mirror the slow growth economy. The September new export orders dipped to 50.0 from August’s tepid 51.9. While the region’s import reading improved slightly, supply managers reported only a very slight upturn in imports with a September index of 50.7, from 47.6 in August. “Exports will always be an important ingredient of this region’s growth. Thus, softer export numbers are a potential drain on economic progress in the months ahead. However with a weak dollar supporting agricultural and energy commodity prices, I expect exports to improve in the months ahead,” said Goss.

Other components: Other components of the September Business Conditions Index were new orders at 56.0, up from August’s 53.6; production or sales at 57.9, up from 56.5; and delivery lead time at 58.4, down from 61.7.

Holiday buying: This month, supply managers were asked about their expectations for this year’s holiday buying season compared to last. Almost one out of five, or 19.5 percent, expect holiday sales to grow more than 5 percent, while one out of 10, or 10.3 percent, anticipate holiday sales to decline by more than 5 percent. The remainder expect sales to range from no change (42.5 percent), to an increase of 1 to 4 percent (18.4 percent), or a decline of 1 to 4 percent, (4.6 percent).

Sustainability buying: This month supply managers were asked whether they were experiencing changes in pressures to buy to support sustainability. More than four of 10, or 42 percent, have experienced increasing pressures to support sustainability via their purchasing patterns, while only 2 percent report a reduction in such pressure. The remaining 56 percent report no change in pressure to buy to support sustainability.

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. The overall index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time.

Arkansas: The state’s leading economic indicator based on a survey of supply managers inched higher for the month. The Arkansas Business Conditions Index for September increased for the first time since March to 52.6 from August’s 50.2. Components of the overall index for September were new orders at 38.8, production or sales at 60.2, delivery lead time at 62.6, inventories at 45.3, and employment at 56.1. “During the official national recession, Arkansas lost more than 45,000 jobs. Since the recession officially ended in June 2009, the state’s employment level has been virtually flat. In terms of jobs, I do not expect the state to be back to pre-recession levels until the middle of 2012,” said Goss.

Iowa: For the ninth straight month, Iowa’s Business Conditions Index climbed above growth neutral. However, the index, a leading economic indicator from a survey of supply managers, slipped to 61.3 from 66.9 in August and 68.2 in July. Components of the overall index for September were new orders at 64.7, production or sales at 64.2, delivery lead time at 61.7, employment at 62.1, and inventories at 54.1. “During the official national recession, Iowa lost more than 53,000 jobs. Since the recession officially ended in June 2009, the state lost another 1,000 jobs. In terms of jobs, I do not expect the state to be back to pre-recession levels until the end of 2011, or the first quarter of 2012,” said Goss.

Kansas: The leading economic indicator for Kansas from a survey of supply managers increased for a second straight month. The September Business Conditions Index climbed to 55.5 from 53.4 in August and 49.3 in July. Components of the overall index for September were new orders at 59.5, production or sales at 55.8, delivery lead time at 54.5, employment at 51.6, and inventories at 45.7. “During the official national recession, Kansas lost more than 48,000 jobs. Since the recession officially ended in June 2009, the state has lost another 2,900 jobs. In terms of jobs, I do not expect the region to be back to pre-recession levels until the first quarter of 2012,” said Goss.

Minnesota: For a third 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 slumped to a still healthy 58.9 from 63.7 in August and 64.4 in July. September represented the 14th straight month that Minnesota's index was above growth neutral. Components of the overall index for September were new orders at 56.2 production, or sales at 61.5, delivery lead time at 54.0, inventories at 65.1, and employment at 57.6. “During the official national recession, Minnesota lost almost 130,000 jobs. Since the recession officially ended in June 2009, the state has recovered almost 20,000 of the lost jobs. In terms of jobs, I expect the state to return to pre-recession levels of employment by the end of 2011,” said Goss.

Missouri: For the 15th straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index based on a survey of supply managers rose to 52.9 from 51.6 in August. Components of the overall index from the September survey were new orders at 52.0 production, or sales at 53.0, delivery lead time at 58.3, inventories at 54.7, and employment at 46.7. “During the official national recession, Missouri lost approximately 120,000 jobs. Since the recession officially ended in June 2009, the state has lost an additional 11,500 jobs. In terms of jobs, I do not expect the state to be back to pre-recession levels until the second half of 2012,” said Goss.

Nebraska: For the 13th consecutive month, Nebraska’s Business Conditions Index, a leading economic indicator, moved above growth neutral. The September reading based on a survey of supply managers dipped slightly to 57.3 from 57.5 in August. Components of the overall index for September were new orders at 57.3, production or sales at 59.8, delivery lead time at 59.4, inventories at 51.3, and employment at 59.0. “During the official national recession, Nebraska lost more than 21,000 jobs. Since the recession officially ended in June 2009, the state has recovered more than 4,000 of the departed jobs. In terms of jobs, I expect the state to return to pre-recession levels in the second half of 2011,” 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, inched higher to 52.7 from August’s 50.4. Components of the overall index for September were new orders at 49.4, production or sales at 44.6, delivery lead time at 68.7, employment at 62.0, and inventories at 38.9. “During the official national recession, the state actually gained almost 6,000 jobs. Since the recession officially ended in June 2009, the state has added another 4,500 jobs. As a result, there are now more workers employed in North Dakota than ever before. However based on our study, job growth for the next six months will be much less than the last six months,” said Goss.

Oklahoma: For a ninth straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers remained above growth neutral. The Business Conditions Index slipped to a still healthy 60.4 from 64.1 in August. Components of September’s overall reading were new orders at 70.0, production or sales at 62.2, delivery lead time at 76.3, inventories at 51.2, and employment at 42.3. “During the official national recession, Oklahoma lost almost 47,000 jobs. Since the recession officially ended in June 2009, the state has recovered almost 10,000 of the departed jobs. In terms of jobs, I expect Oklahoma to be back to pre-recession levels by the end of 2011,” said Goss.

South Dakota: South Dakota’s leading economic indicator continues to point to a healthy economic expansion. The overall index, based on a survey of supply mangers in the state, expanded to a regional high of 70.2 from 67.5 in August. Components of the overall index for September were new orders at 69.4, production or sales at 74.1, delivery lead time at 61.2, inventories at 74.6, and employment at 71.9. “During the official national recession, South Dakota lost more than 5,000 jobs. Since the recession officially ended in June 2009, the state has recovered approximately 2,600 of the lost jobs. In terms of jobs, I expect the state to be back to pre-recession levels by the middle of 2011,” 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/