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Mid-America Leading Economic Indicator Rises

November survey results at a glance:

  •  Leading economic indicator rises above growth neutral.
  •  Approximately 30 percent of firms anticipate adding new employees in the first half of 2012.
  • Employment gauge falls below growth neutral for the fourth straight month.
  • Supply managers expect wholesale prices to rise by 3.7 percent over the next six months.
  •   Anticipated annualized wholesale-price growth has declined by 1.5 percentage points since February 2010.

Mid-America Leading Economic Indicator Rises:
Slight Job Losses for Fourth Straight Month

After declining below growth neutral in October, the Business Conditions Index for the nine-state, Mid-America region, moved above 50.0 for November. The index, a leading economic indicator from a monthly survey of supply managers, continues to point to slow growth for the region for the next three to six months and a small risk of a recession.

Overall index: The index, which ranges between 0 and 100, climbed to 52.6 from 49.9 for October. November’s reading is the 23rd time in the past 24 months that the index rose above growth neutral. “Surveys over the past several months indicate that the slowdowns in the national and global economies are putting downward pressure on the regional economy,” said Ernie Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

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.

Employment: For a fourth straight month, the employment index remained below growth neutral, though the November reading inched higher to 49.5 from October’s 49.0. “Our surveys over the last four months indicate that job growth in the region has slowed significantly. Approximately 18 percent of survey companies reported net job reductions for November, the same as in October,” said Goss.

This month firms, were asked about their hiring expectations for the next six months. “Only 30 percent expect to add workers while the remaining 70 percent anticipate layoffs or level employment for the first half of 2012,” said Goss.“These expectations are somewhat more optimistic than December 2010, when 24 percent anticipated worker additions for the next six months.”

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, rose to 60.9 from October’s 56.0. As regional growth has waned, so have inflationary pressures at the wholesale level. “Lower inflation in the pipeline gave the Federal Reserve room to take the coordinated monetary easing action it initiated yesterday with five other central banks,” said Goss.

This month supply managers were asked how much they expected prices of products they buy to increase in the next six months. Approximately 20 percent of the supply managers expect these prices to grow by more than 6 percent during the next six months. Overall, supply mangers anticipate prices to grow by 3.7 percent over the next six months or approximately 7.4 percent on an annualized basis. “Last February when we asked the same question, supply managers expected annualized price growth of 8.8 percent. Thus, anticipated wholesale price growth has declined by 1.5 percentage points since February,” said Goss.

Inventories: After declining below growth neutral for October, supply managers in the nine-state region once again increased inventory levels for the month. November’s inventory index climbed to 52.9 from October’s 48.5. Confidence: Looking ahead six months, economic optimism, as captured by the November business confidence index, sank to 49.1 from October’s already weak 49.5. “Supply managers in our survey remain pessimistic about economic prospects for the first half of 2012. Economic uncertainty in Europe and a frail U.S. housing sector were identified as factors weighing on the economic outlook,” said Goss.

Trade: Tepid regional growth has pushed Mid-America firms to pull back on their purchases from abroad. The November import index once again sank below growth neutral with a reading of 49.5, up slightly from October’s 48.0. “Even with an upturn in new export orders to 52.1 from October’s 50.0, weak global economic growth continues to restrain exports for firms in the region,” said Goss.

Other components: Other components of the November Business Conditions Index were new orders at 52.0, up from October’s 45.4; production or sales at 52.4, up from 48.5; and delivery lead time at 56.5, down from 57.9 in October.

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: For only the second time in the past seven months, the leading economic indicator for Arkansas advanced. The November index soared to 63.0 from 52.7 in October. Components of the index were new orders at 69.4, production or sales at 68.5, delivery lead time at 56.2, inventories at 60.3, and employment at 60.7. “This month’s upturn is very encouraging given the pullbacks identified by durable and nondurable goods producers in previous months, but we will have to watch future readings for the state. Manufacturers have increased average weekly hours worked rather than adding to their payrolls. Since reaching its lowermost level in February 2010, Arkansas has added more than 22,000 jobs, but needs to tally another 36,000 jobs to reach pre-recession levels,” said Goss.

Iowa: The November Business Conditions Index for Iowa remained above growth neutral for the 23rd straight month. The index, from a survey of supply managers, rose to 57.7 from October’s 55.4. Components of the index were new orders at 55.5, production or sales at 57.8, delivery lead time at 61.6, employment at 57.0, and inventories at 56.6. “Both durable and nondurable goods manufacturers reported strong business conditions for the month. Since bottoming out in December 2009, Iowa has added approximately 21,000 jobs. Even so, Iowa must add another 41,000 to reach pre-recession levels. Our survey results over the last several months point to strong growth with durable-goods producers and food processors leading the way,” said Goss.

Kansas: The Business Conditions Index, a leading economic indicator for Kansas, rose to 50.9 from 47.9 in October. The survey from supply managers in the state is pointing to slow growth for the Kansas economy in the months ahead. Components of the index were new orders at 51.9, production or sales at 50.3, delivery lead time at 59.3, employment at 43.5, and inventories at 49.7. “Both durable and nondurable goods manufacturers reported solid business conditions for the month. So far, manufacturers have relied more on increasing the length of the average workweek rather than adding to their payrolls. Since bottoming out in February 2011, Kansas has added more than 9,000 jobs. Even so, the state needs to add another 59,000 to reach pre-recession levels. Our survey results over the last several months point to weak, but positive growth in the months ahead, with durable goods producers leading the way,” said Goss.

Minnesota: The Minnesota Business Conditions Index, a leading economic indicator from a monthly survey of supply managers, was above growth neutral for the 28th straight month at 54.7 from October’s 55.4. Components of the index for November were new orders at 51.7, production or sales at 51.0, delivery lead time at 59.3, inventories at 59.5, and employment at 52.1. “Durable goods manufacturers reported solid business conditions for the month. So far, manufacturers have relied heavily on increasing the length of the average workweek limiting the growth in payrolls. Since reaching a bottoming out in September 2009, the state has added almost 53,000 jobs. Even so, Minnesota must add another 97,000 jobs to reach pre-recession levels. Our survey results over the last several months point to strong growth with durable goods producers leading the way,” said Goss.

Missouri: The November Missouri Business Conditions Index was unchanged from October at 47.3. The index, a leading economic indicator, points to economic weakness and job losses in the months ahead. Components of the Business Conditions Index were new orders at 45.3, production or sales at 47.1, delivery lead time at 54.6, inventories at 46.8, and employment at 42.8. “Durable goods manufacturers reported solid business conditions for the month. However, this growth was more than offset by economic pullbacks among value-added service firms such as telecommunications. Since bottoming out in December 2010, Missouri has added almost 12,000 jobs. Even so, the state must add another 97,000 to reach pre-recession levels. Our survey results over the last several months point to economic weakness for the next 3 to 6 months outside of the durable goods sector,” said Goss.

Nebraska: The November Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 13th straight month. The index, a leading economic indicator from a survey of supply managers expanded to 55.2 from 54.3 in October. Components of the index were new orders at 52.6, production or sales at 55.0, delivery lead time at 57.4, inventories at 56.2, and employment at 54.6. “Durable goods manufacturers and food processors reported solid business conditions for the month. In addition to adding jobs, manufacturers have increased the length of the average workweek. Since bottoming out in January 2010, Nebraska has added almost 30,000 jobs. The state needs to add less than 1,000 jobs to reach pre-recession levels. Our survey results over the last several months point to strong growth with durable goods producers leading the way,” said Goss.

North Dakota: The leading economic indicator for North Dakota expanded for November and was the second highest in the region. The Business Conditions Index rose to 57.9 from October’s regional high 57.2. Components of the index for November were new orders at 62.6, production or sales at 59.0, delivery lead time at 61.2, employment at 56.9, and inventories at 49.6. “Durable and nondurable manufacturers in the state continue to report very healthy business conditions. In addition, growth among firms linked to the energy sector has pushed the state to record employment levels. Firms tied to agriculture and energy will continue to push North Dakota’s economy to record high levels of employment and robust economic growth in the next 3 to 6 months,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma from a monthly survey of supply managers declined in November to 52.5 from October’s 53.9. Components of the leading economic indicator for November were new orders at 55.5, production or sales at 49.3, delivery lead time at 59.6, inventories at 46.9, and employment at 57.0. “Durable goods manufacturers reported solid business conditions for the month. In addition to adding to their payrolls, manufacturers in the state are increasing the length of the average workweek. Since bottoming out in February 2010, Oklahoma has added almost 57,000 jobs. The state needs to add just 5,000 jobs to reach pre-recession levels. Our survey results over the last several months point to strong growth with durable and nondurable goods producers leading the way,” said Goss.

South Dakota: South Dakota’s leading economic indicator once again climbed above growth neutral in November. The Business Conditions Index, from a monthly survey of supply managers, slipped to 50.3 from October’s 52.6. Components of the index for November were new orders at 52.6, production or sales at 49.0, delivery lead time at 47.5, inventories at 45.9, and employment at 56.5. “Manufacturers reported solid business conditions for the month. In addition to increasing their employment levels, manufacturers in the state are increasing the length of the average workweek. Since bottoming out in February 2010, South Dakota has added approximately 7,000 jobs. The state needs to add just another 2,000 jobs to reach pre-recession levels. Our survey results over the last several months point to strong growth with durable and nondurable goods producers leading the way,” said Goss.

Survey results for December will be released Jan. 2.

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For historical data and forecasts visit our website at:
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