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Confidence Remains High for Mid-America Region

March survey results at a glance:

  • Exports leading the way to improving growth.
  • Inflation gauge climbs above 80.0 for the seventh time in the past year.
  • Leading economic indicator points to healthy growth for next six months.
  • Business confidence remains high despite economic and political turmoil.
  • Almost 16 percent of firms expect significant supply disruptions resulting from the earthquake and tsunami in Japan.

Despite Soaring Inflation and Weak Urban Job Growth
Confidence Remains High for Mid-America Region

For the first time since October of last year, the Business Conditions Index, a leading economic indicator for the nine-state Mid-America region, declined but remained in a range pointing to healthy economic growth for next three to six months. However, as in prior months, the March survey indicates rising inflationary pressures at the wholesale level.

Overall index: The index, a leading economic indicator that ranges between 0 and 100, slipped to 61.4 from 63.2 in February. This is the 16th consecutive month that the index has been above growth neutral. An index of 50.0 is considered growth neutral. The overall index, or Business Conditions Index, is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time. This is the same methodology used by the national Institute for Supply Management.

“Very healthy growth stemming from the export of agricultural and manufacturing goods continues to be an important source of growth in the region,” Creighton University Economics Professor Ernie Goss said today.

Employment: For a 15th straight month, the regional employment index remained above growth neutral. The March job reading advanced to a very healthy 60.3 from February’s 58.3. “This month, only 10.7 percent of firms reported reductions in employment. This compares to 31.3 percent reporting expansions in employment for the month. As in past months, firms in nonurban areas are reporting much stronger hiring than their counterparts in urban areas of the region,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

“From the beginning of the recession in December 2007 until March of last year the region lost more than 553,000 jobs. Over the past year, the region has recovered approximately 14 percent of those jobs. Our surveys over the past several months indicate that the region will add another 100,000 by the end of 2011 leaving the region down 379,000 jobs, or 3.0 percent, since beginning of the recession,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, dipped to a still inflationary 88.0 from 89.2 in February. “Since the national recession ended in June 2009, we have tracked what I consider to be highly inflationary increases in our price gauge,” said Goss.

“We continue to record unacceptably high inflationary pressures at the wholesale level. The upward pressures in prices will be further exacerbated by disruptions of supplies and products from Japan., said Goss. “Additionally, the Federal Reserve’s record low short-term interest rate policy and the Fed’s policy of buying long-term U.S. Treasury debt, quantitative easing 2 (QE2), will continue to contribute to higher inflationary pressures. Over the past three months, U.S. wholesale prices have advanced at an annualized pace of more than 15 percent. Surveys of supply managers, both in our region and nationally, indicate that this elevated pace will continue at least through the summer of this year.

Confidence: Looking ahead six months, economic optimism, as captured by the March business confidence index, dipped to a still strong 65.8 from 71.0 in February. “Despite higher commodity prices, unacceptably elevated unemployment rates, and Japanese supply disruptions, supply managers remain upbeat in their economic outlook,” said Goss.

Inventories: For the 13th time in the past 14 months, supply managers in the nine-state region expanded inventory levels. The March inventory index slipped to 60.9 from 61.9 in February. “The extended buildup in inventories of raw materials and supplies is another indication of the degree of economic optimism among supply managers as they expect growing sales to reduce supply inventories in the months ahead,” said Goss.

This month supply managers were asked how they expected the Japanese tragedy to affect their purchases of supplies and inputs. Approximately two-thirds of respondents expected little or no impact on the price of purchases while only 4 percent anticipated price increases of more than 10 percent resulting from the earthquake and tsunami. In terms of deliveries, approximately 15.6 percent expect significant delays in obtaining supplies while 55.8 percent anticipate little or no impact on delivery speed stemming from the Japanese disaster. The remaining supply managers anticipate minor delays.

Trade: An expanding global economy continues to boost regional trade numbers. Aided by a cheap dollar making U.S. goods more competitively priced abroad, March’s new export orders index stood at a healthy 57.5 compared to February’s 62.4 and January’s 54.7. The region’s import reading expanded to 58.1 from 57.7 in February. “Despite all of the international turmoil and uncertainty, businesses continue to expand both sales and purchases abroad,” said Goss.

Other components: Other components of the March Business Conditions Index were new orders at 65.7, unchanged from February; production or sales at 63.0, down from 65.6; and delivery lead time at 57.2, down from 64.7 in February.

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 leading economic indicator for Arkansas from a monthly survey of supply managers advanced for the fifth time in the past six months to 71.8 from 68.7 in February. Components of the Business Conditions Index for March were new orders at 85.5, production or sales at 86.5, delivery lead time at 63.0, inventories at 58.3, and employment at 66.0. “From the beginning of the recession in December 2007 until March of last year Arkansas lost more than 50,000 jobs. Over the past year, Arkansas has recovered approximately 46 percent of those lost jobs. Our surveys over the past several months indicate that the state will return to pre-recession employment levels by the end of the first quarter of 2012,” said Goss.

Iowa: For the 15th straight month, Iowa’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator from a survey of supply managers, climbed to 67.9 from February’s 66.2. Components of the index for March were new orders at 80.2, production or sales at 72.3, delivery lead time at 66.5, employment at 58.7, and inventories at 61.9. “From the beginning of the recession in December 2007 until March of last year the state lost almost 60,000 jobs. Over the past year, Iowa has recovered approximately 20 percent of those lost jobs. Our surveys over the past several months indicate that by the end of the first quarter of 2012, Iowa’s employment level will be approximately 20,000 jobs below its pre-recession level,” said Goss.

Kansas: The Business Conditions Index from the monthly survey of supply managers was down to 55.1 from February’s 60.1, though it is the seventh time in the past eight months that the leading economic indicator for Kansas was above growth neutral. Components of the index for March were new orders at 49.3, production or sales at 51.1, delivery lead time at 60.3, employment at 51.6, and inventories at 63.1.“From the beginning of the recession in December 2007 until March of last year the state lost almost 69,000 jobs. Over the past year, Kansas lost another 14,000 jobs. Surveys over the past several months project that by the end of the first quarter of 2012 Kansas’ employment level will be approximately 35,000 jobs below its pre-recession level,” said Goss.

Minnesota: Minnesota’s leading economic indicator from the monthly survey of supply managers was above growth neutral for the 20th straight month at 67.9, up from 59.8 in February. Components of the index for March were new orders at 80.2, production or sales at 72.3, delivery lead time at 66.5, inventories at 61.9, and employment at 58.7. “From the beginning of the recession in December 2007 until March of last year the state lost almost 140,000 jobs. Over the past year, Minnesota has recovered approximately 12 percent of those lost jobs. Our surveys over the past several months indicate that by the end of the first quarter of 2012, Minnesota’s employment level is projected to be approximately 70,000 jobs below its pre-recession level,” said Goss.

Missouri: For the 21st straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator based on a survey of supply managers, dipped to a still healthy 59.8 from February’s 61.2. Components of the Business Conditions Index for March were new orders at 59.4, production or sales at 60.8, delivery lead time at 61.6, inventories at 58.6, and employment at 58.6. “From the beginning of the recession in December 2007 until March of last year the state lost almost 150,000. Over the past year, Missouri lost another 9,000. Based on surveys over the past several months, it is projected that by the end of the first quarter of 2012 Missouri’s employment level will be approximately 90,000 jobs below its pre-recession level,” said Goss.

Nebraska: Nebraska’s Business Conditions Index, a leading economic indicator, moved above growth neutral 50.0 for a fifth straight month. The index from a survey of supply managers climbed to 58.9 from 55.4 in February. Components of the index for March were new orders at 63.3, production or sales at 57.1, delivery lead time at 54.7, inventories at 60.4, and employment at 59.6. “From the beginning of the recession in December 2007 until March of last year the state lost almost 27,000 jobs. Over the past year, Nebraska has recovered approximately 45 percent of those lost jobs. Our surveys over the past several months indicate that by the second quarter of 2012, Nebraska’s employment level is projected to return to its pre-recession level,” said Goss.

North Dakota: The leading economic indicator from Creighton’s monthly survey of supply managers for North Dakota once again climbed above growth neutral. The Business Conditions Index increased to 56.3 from 59.3 in February. Components of the index for March were new orders at 47.0, production or sales at 49.0, delivery lead time at 76.4, employment at 46.5, and inventories at 62.7. “From the beginning of the recession in December 2007 until March of last year the state added almost 10,000 jobs. Over the past year, North Dakota gained another 16,000 jobs. Our surveys over the past several months indicate that the pace of job gains will continue, albeit at a slower pace, with the state employment level rising by another 8,000 jobs by the end of 2012,” said Goss.

Oklahoma: For the 15th straight month, Oklahoma’s leading economic indicator remained above growth neutral. The Business Conditions Index from a monthly survey of supply managers climbed to 76.1 from February’s 62.2. Components of the index for March were new orders at 78.5, production or sales at 77.4, delivery lead time at 94.7, inventories at 74.6, and employment at 55.3. “From the beginning of the recession in December 2007 until March of last year the state lost more than 60,000 jobs. Over the past year, Oklahoma has recovered approximately 22 percent of those lost jobs. Surveys over the past several months project that by the end of the first quarter of 2012, Oklahoma’s employment level will be approximately 15,000 jobs below its pre-recession level,” said Goss.

South Dakota: South Dakota’s leading economic indicator points to healthy growth for the next three to six months. The Business Conditions Index from a monthly survey of supply managers, advanced to 64.5 from 63.8 in February. Components of the index for March were new orders at 76.2, production or sales at 76.5, delivery lead time at 41.6, inventories at 62.2, and employment at 65.7. “From the beginning of the recession in December 2007 until March of last year the state lost almost 8,000 jobs. Over the past year, South Dakota has recovered approximately 60 percent of those lost jobs. Surveys over the past several months project that by the end of 2011, South Dakota’s employment level will return to its pre-recession level,” said Goss.

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