Mid-America Leading Economic Slumps for Third Straight Month
August survey results at a glance:
- Leading economic indicator declines to lowest level since January but remains in healthy range.
- More than one-third of supply managers expect a recession in 2011.
- Inflation, not deflation, is more of a concern.
- Growth push from inventory buildups is waning.
Mid-America Leading Economic Slumps for Third Straight Month:
Growth Outlook Down but Still Positive
The August Business Conditions Index for the Mid-America region dipped to a still healthy level, pointing to an expanding regional economy in the months ahead, according to the August Business Conditions survey of supply managers in the nine-state region. However, surveys over the past several months indicate that economic expansion will continue to weaken, and there is rising potential for a double-dip recession.
The index declined to 55.8 from July’s 60.8 and June’s 62.5. An index of 50.0 is considered growth neutral for the leading economic indicator. This was the ninth straight month that the index has risen above growth neutral.
“These results are very similar to what we recorded coming out of the 2001 recession. Of course, the big difference is that tax cuts were passed in 2001 and 2003. At this point in time, Americans are staring at a significant tax increase on Jan. 1, 2011. Even so, our surveys are pointing to much slower growth at this time, not a double-dip recession,” Creighton University Economics Professor Ernie Goss said today.
For an eighth straight month, the regional employment index climbed above growth neutral. The August job reading dipped to 55.2 from 58.8 in July. This month supply managers were asked what their expectations are for the U.S. economy in 2011. Over one-third, or 35 percent, said it was likely or very likely that the U.S. economy would move back into recessionary territory in 2011. Only 21 percent indicated that a 2011 recession was unlikely or very unlikely. The remaining 44 percent indicated that there was a 50 percent chance of a 2011 recession.
“The Mid-America region is showing a lot more strength than the national economy. Over the past several months, for example, the region has been adding jobs at a very healthy pace while U.S. job growth has been nil. With a weak dollar supporting agriculture and energy commodity prices, I expect this gap between the regional and national economies to remain and potentially widen,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
The prices-paid index, which tracks the cost of raw materials and supplies, inched higher for the month to 64.6 from July’s 64.1. This was the 15th straight month that the survey’s inflation gauge rose above growth neutral. “Based on our survey results, as well as other surveys of supply managers, I still think fears of deflation are overblown. Once the economy gets back on track, inflation and price bubbles will be the problem, not deflation,” said Goss.
Supply managers were asked their predictions for price changes for their company’s products for 2011. Only 7 percent expect price declines for 2011 while 55 percent expect price increases for 2011. The remaining 38 percent predict level prices for 2011.
Looking ahead six months, economic optimism, captured by the August business confidence index, dipped to 52.4 from 54.8 in July and 59.4 in June. “This is the lowest confidence index that we have recorded since January 2009 and the fourth straight month that the confidence has declined,” said Goss.
Trade numbers for August mirror the slow growth economy. The August new export orders advanced slightly to 51.9 from 51.0 in July, well below from June’s 60.9. Supply managers reported a pullback in imports with an August index of 47.6, down from 54.0 in July. “Exports were an important component of the economic expansion earlier in the year. The softer export numbers are not a good signal for growth prospects,” said Goss.
For a seventh consecutive month, supply managers in the nine-state region increased inventory levels. The August inventory index decreased to 51.9 from July’s much stronger 55.7. “For most of the recession, companies in our survey reduced inventory levels. However, beginning in February of this year, companies began growing their inventory levels. This inventory expansion has been an important source of growth. However, it is clear inventory growth will not be a catalyst for growth in the months ahead,” said Goss.
Other components of the August Business Conditions Index were new orders at 53.6, up from July’s 53.1; production or sales at 56.5, down from 58.0; and delivery lead time at 61.7, down from 78.7 in July.
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’ leading economic indicator based on a survey of supply managers in the state once again moved lower indicating a slowing of growth in the months ahead. The Arkansas Business Conditions Index for August declined for the fifth straight month to 50.2 from July’s 50.5 and June’s 55.9. Components of the overall index for August were new orders at 40.1, production or sales at 57.9, delivery lead time at 62.7, inventories at 40.7, and employment at 49.8. “The state’s large nondurable goods manufacturing sector is experiencing improving business activity. This has been an important factor pushing the Arkansas economy forward at a healthy pace over the past several months. Our survey results indicate that the growth will likely remain positive but well down from earlier in the year,” said Goss.
Iowa: For the eighth 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 66.9 from July’s 68.2. Components of the overall index for August were new orders at 73.8, production or sales at 72.9, delivery lead time at 67.8, employment at 61.7, and inventories at 58.1. “Very healthy growth in Iowa’s durable goods manufacturing sector has more than offset weaker conditions among nondurable goods producers, especially food producers. Egg recalls among Iowa producers will only further weaken the sector,” said Goss.
Kansas: The leading economic indicator for Kansas from a survey of supply managers increased for the first time since May. The August Business Conditions Index climbed to 53.4 from 49.3 in July and 51.1 in June. Components of the overall index for August 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. “Food producers in Kansas report experienced healthy business conditions for the month. On the other hand, durable goods manufacturers and telecommunications firms have experienced pullbacks in growth prospects,” said Goss.
Minnesota: Once again Minnesota’s leading economic indicator, based on a survey of supply managers, is indicating healthy economic conditions ahead. However, the state’s Business Conditions Index dipped slightly to 63.7 from 64.4 in July and 65.5 in June. This was the 13th straight month that Minnesota's index was above growth neutral. Components of the overall index for August were new orders at 62.3, production, or sales, at 62.9, delivery lead time at 57.9, inventories at 66.8, and employment at 68.5. “Over the past several months, Minnesota has experienced annualized job growth above 2.0 percent, or well above the regional average. Durable and nondurable goods producers are detailing healthy growth in sales, new orders and employment,” said Goss.
Missouri: For the 14th straight month, Missouri’s Business Conditions Index climbed above growth neutral. However, the index from a survey of supply managers slipped to 51.6 from July’s 53.8. Components of the overall index from the August survey were new orders at 51.8, production, or sales, at 51.8, delivery lead time at 56.1, inventories at 51.1, and employment at 47.3. “Outside of food processing firms, nondurable goods firms are reporting flat economic conditions. Even transportation equipment manufacturing is experiencing softer economic conditions compared to earlier in the year. I expect growth to remain positive but down from earlier in the year for the state,” said Goss.
Nebraska: For a 12 consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, moved above growth neutral. The August reading from a survey of supply managers sank to 57.5 from July’s 62.9. Components of the overall index for August were new orders at 56.6, production, or sales, at 63.8, delivery lead time at 61.4, inventories at 48.9, and employment at 57.0. “Durable goods producers in the state are increasing output at a brisk rate even as they add jobs at a much more subdued pace. Rail shipping has been very healthy while truck transportation has been a bit softer in the state. Food processing firms have yet to experience significant upturns in business activity,” said Goss.
North Dakota: North Dakota’s leading economic indicator once again remained above growth neutral. The index, based on a survey of supply managers in the state, slumped to 50.4 from July’s 57.6. Components of the overall index for August were new orders at 32.2, production, or sales, at 39.2, delivery lead time at 70.7, employment at 57.3, and inventories at 52.8. “The gap between regional growth and North Dakota growth will narrow in the months ahead as the state’s rapid expansion slows a bit. Durable goods producers continue to grow at a faster pace than nondurable goods manufacturers in North Dakota,” said Goss.
Oklahoma: For an eighth straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers remained above growth neutral. The Business Conditions Index expanded to a still healthy 64.1 from July’s 61.6. Components of August’s overall reading were new orders at 73.4, production, or sales, at 74.4, delivery lead time at 69.3, inventories at 52.4, and employment at 51.2. “While growth among the other states is slipping, Oklahoma’s economic expansion is escalating. Food processors and other nondurable goods manufacturers are likewise reporting upturns in business even as the national economy weakens,” said Goss.
South Dakota: South Dakota’s leading economic indicator continues to point to an economic expansion. The index, based on a survey of supply mangers in the state, expanded to a regional high of 67.5 from July’s 66.6. Components of the overall index for August were new orders at 68.7, production, or sales, at 68.2, delivery lead time at 62.4, inventories at 69.3, and employment at 68.8. “Growth prospects in South Dakota have improved over the past several months even as the national and regional economies have cooled. Manufacturers in the state is expanding while construction activity has yet to get back on track,” said Goss.
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