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Exports Driving Mid-America Economy Higher for February

February survey results at a glance:

  • Exports leading the way to improving growth.
  • Inflation gauge climbs above 80.0 for the sixth time in the past year.
  • Leading economic indicator points to healthy growth for the first half of 2011.
  • Job growth in non-urban areas very strong while urban job growth weak. For

Exports Driving Mid-America Economy Higher for February:
Soaring Inflation and Weak Urban Job Growth Also Seen

For the fourth straight month, the Business Conditions Index, or leading economic indicator, for the nine-state Mid-America region advanced. According to recent surveys of supply managers, the region will continue to expand at a very healthy pace for the first half of 2011, but with rising inflationary pressures at the wholesale level.

Overall index: The index, a leading economic indicator that ranges between 0 and 100, climbed to 63.2 from 58.9 in January. This is the 15th consecutive month that the index has risen above growth neutral. An index of 50.0 is considered growth neutral. A rapidly growing agriculture sector and soaring trade are pushing growth higher for firms in the region, particularly companies in non-urban areas of the region. 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.

“The Federal Reserve’s (Fed) policy of record-low interest rates producing a cheap dollar is providing a significant boost to the regional economy. Since December 2008, the Fed has maintained short-term interest rates (the funds rate) between zero and 0.25 percent. This has contributed significantly to an 18 percent increase in farm product prices over the past year and to very rapid growth in exports,” Creighton University Economics Professor Ernie Goss said today.

Employment: For a 14th straight month, the regional employment index remained above growth neutral. The February job reading bounced to a strong 58.3 from January’s healthy 56.3. “This month, only 11.3 percent of firms reported layoffs. This compares to 24 percent reporting layoffs at the beginning of the nation’s economic rebound in July 2009. 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.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, ballooned to 89.2 from 84.2 in January. “Since the national recession ended in June 2009, we have tracked what I consider to be unsustainable increases in our inflation gauge,” 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 one-third of the supply managers expect these prices to grow by more than 6 percent over the next six months. Overall supply mangers anticipate prices to grow by 4.4 percent over the next six months, or approximately 8.8 percent on an annualized basis. “Our surveys show no signs that this pace will slow in the coming months. As I have said in past months, I expect long-term interest rates to grow rapidly in the second half of 2011 to compensate lenders for rising inflation,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February business confidence index, declined to a still strong 71.0 from 74.8 in January. “It is clear that oil prices bouncing around $100 per barrel contributed to February’s slippage. Nonetheless, supply managers remain confident about future economic conditions even though unemployment rates remain well above historical averages for most states in the region,” said Goss.

Inventories: For the 12th time in the past 13 months, supply managers in the nine-state region expanded inventory levels. The February inventory index rose to a robust 61.9 from 55.8 in January. “As a result of rising current economic conditions and expanding business confidence, firms in the region continue to expand inventories in anticipation of growing sales in 2011,” said Goss.

Trade: An expanding global economy is pushing trade higher. Aided by a cheap dollar making U.S. goods more competitively priced abroad, February’s new export orders index rocketed to 62.4 from 54.7 in January. The region’s import reading expanded to 57.7 from January’s 55.5. “The Fed’s expansionary interest rate policies continue to weaken the U.S. dollar and strengthen regional exports. I expect this trend to continue until the Fed abandons QE2 (quantitative easing 2) sometime this summer,” said Goss.

This month supply managers were also asked how their international buying had changed over the past six months. Almost one-fourth indicated that their firm’s international buying had expanded while only 10 percent reported a contraction in buying from abroad.

Other components: Other components of the February Business Conditions Index were new orders at 65.7, up from January’s 60.2; production or sales at 65.6, up from 62.7; and delivery lead time at 64.7, up from 59.5 in January.

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 advanced for the fourth time in the past five months to 68.7 from 59.9 in January. Components of the Business Conditions Index for February were new orders at 83.5, production or sales at 85.4, delivery lead time at 63.4, inventories at 54.1, and employment at 57.0. “Even though the state has begun adding manufacturing jobs at a healthy pace, the manufacturing sector is still down almost 23,000 or 12.1 percent of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for both durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Iowa: For the 14th 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 66.2 from January’s 64.0. Components of the index for February were new orders at 81.9, production or sales at 73.3, delivery lead time at 61.5, employment at 54.9, and inventories at 59.5. “Even though the state has begun adding durable manufacturing jobs at a healthy pace, the manufacturing sector has still lost almost 25,000 or 10.6 percent of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Kansas: For the sixth time in the past seven months, the leading economic indicator for Kansas moved above growth neutral. The Business Conditions Index climbed to 60.1 from 53.2 in January. Components of the index for February were new orders at 58.6, production or sales at 52.2, delivery lead time at 70.5, employment at 53.2, and inventories at 52.2. “Even though the state has begun adding durable and nondurable manufacturing jobs at a healthy pace, the manufacturing sector has still lost almost 27,000 or 14.2 percent of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Minnesota: Minnesota’s leading economic indicator from the monthly survey of supply managers was above growth neutral for the 19th straight month at 59.8 from 55.2 in January. Components of the index for February were new orders at 64.0, production or sales at 63.8, delivery lead time at 57.3, inventories at 57.8, and employment at 56.5. “Even though Minnesota has begun adding durable and nondurable manufacturing jobs at a healthy pace, the manufacturing sector has still lost almost 39,000 or 11.5 percent of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Missouri: For the 20th straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator based on a survey of supply managers, rose to a healthy 61.2 from 57.5 in January. Components of the Business Conditions Index for February were new orders at 63.5, production or sales at 63.8, delivery lead time at 61.0, inventories at 57.8, and employment at 59.8. “Even though the state has begun adding manufacturing jobs at a slow pace, the manufacturing sector has still lost almost 50,000, or 16.6 percent, of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Nebraska: Nebraska’s Business Conditions Index, a leading economic indicator, remained above growth neutral 50.0 for a fourth straight month. The index from a survey of supply managers dipped slightly to 55.4 from January’s 55.7. Components of the Business Conditions Index for February were new orders at 51.7, production or sales at 55.3, delivery lead time at 61.1, inventories at 55.2, and employment at 54.6. “Even though the state has begun adding manufacturing jobs at a slow pace, the manufacturing sector has still lost approximately 9,200, or 9.0 percent, of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” 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 59.3 from 54.8 in January. Components of the index for February were new orders at 56.5, production or sales at 48.0, delivery lead time at 77.9, employment at 55,5, and inventories at 58.8. “Even though North Dakota has begun adding manufacturing jobs at a positive pace, the manufacturing sector has still lost approximately 2,700, or 10.3 percent, of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

Oklahoma: For the 14th straight month, Oklahoma’s leading economic indicator remained above growth neutral. The Business Conditions Index from a monthly survey of supply managers climbed to 62.2 from 54.5 in January. Components of February’s index were new orders at 57.1, production or sales at 54.8, delivery lead time at 89.4, inventories at 49.1, and employment at 60.5. “Even though the state has begun adding manufacturing jobs at a healthy pace, the manufacturing sector has still lost more than 25,000, or 16.6 percent, of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

South Dakota: South Dakota’s leading economic indicator points to healthy growth into the third quarter of this year. The Business Conditions Index from a monthly survey of supply managers, advanced to 63.8 from 61.1 in January. Components of the index for February were new orders at 60.8, production or sales at 69.7, delivery lead time at 49.9, inventories at 74.3, and employment at 64.8. “Even though the state has begun to add manufacturing jobs at a solid pace, the manufacturing sector has still lost approximately 3,800, or 9.0 percent, of its employment base since the beginning of the recession. Our surveys over the past several months point to job expansions for durable and nondurable manufacturing and the overall economy well into the third quarter of this year,” said Goss.

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