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Mid-America Leading Economic Indicator Slides Again

April survey results at a glance:

  • Leading economic indicator drops for second straight month.
  • Inflation gauge climbs to highest level since 1994.
  • Almost half of respondents report that suppliers are adding transportation surcharges to deal with escalating energy costs.
  • Supply managers expect prices for products and services they buy to increase at an annualized pace of 9.6 percent over the next six months.

Mid-America Leading Economic Indicator Slides Again:
Inflation Gauge Soars to Record Heights

For a second straight month, the Business Conditions Index, a leading economic indicator for the nine-state Mid-America region, declined. However, it remained in a range pointing to positive but slowing economic growth for next three to six months. As in prior months, the April survey indicated soaring inflationary pressures at the wholesale level.

Overall index: The index, a leading economic indicator that ranges between 0 and 100, slipped to 57.7 from 61.4 in March. This is the 17th consecutive month that the index has been above growth neutral 50.0. 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

“As higher agricultural commodity prices improve the outlook for firms linked to the farm sector, we are beginning to see high energy prices cut into economic growth,” Creighton University Economics Professor Ernie Goss said today.

Employment: For the 16th straight month, the regional employment index remained above growth neutral though the April job reading slumped to 54.0 from March’s very healthy 60.3. “This month16 percent of firms reported reductions in employment. This compares to 10.7 percent of firms that indicated pullbacks in March employment. Growth in the regional labor market, while still positive, appears to be weakening,” 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, soared to 94.0, a record high, from March’s 88.0. “Higher commodity prices, especially for energy products pushed our inflation gauge to its highest level since we initiated the survey in 1994,” said Goss.

“We continue to record unacceptably high inflationary pressures at the wholesale level. Even though the Federal Reserve (Fed) indicated it would end its buying of long-term U.S. Treasury bonds, quantitative easing 2 (QE2), this summer, I expect the Fed’s record-low short-term interest rates to continue to weaken the dollar and push inflation above the Fed’s comfort zone,” said Goss.

“This month we asked survey participants how their suppliers were dealing with higher energy prices. Approximately 28 percent indicated that their vendors had raised prices permanently, 14 percent reported temporary price increases and 48 percent indicated that supplying firms had added transportation surcharges. The remaining 10 percent reported other supplier reactions, said Goss.”

Supply managers were also asked how much they expected the prices they pay for products and services to increase over the next six months. “Approximately 39 percent anticipate growth of more than six percent over the next half year. Overall, an annualized upturn over 9.6 percent is expected. This is up from 6.6 percent in November of last year when we asked the same question,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the April business confidence index, sank to 57.5 from 65.8 in March.“Higher energy prices are having a negative impact on supply manager’s economic outlook. Supply mangers said they expect escalating commodity prices to limit the current economic recovery,” reported Goss.

Inventories: For the 14th time in the past 15 months, supply managers in the nine-state region expanded inventory levels though the April inventory index slumped to 53.7 from 60.9 in March. “The decline in inventory buildup of raw materials and supplies is another indication of the slippage in economic optimism among supply managers as they expect higher input prices to reduce economic growth and their firm’s sales in the months ahead,” said Goss.

Trade: An expanding global economy continues to boost regional trade numbers. Aided by a cheap dollar making U.S. goods more competitively priced abroad, April’s new export orders index stood at a healthy 57.1 compared to March’s 57.5. The region’s import reading dipped to 56.1 from March’s 58.1. “The cheap dollar and a global economic expansion combined to boost sales and new orders from abroad,” said Goss.

Other components: Other components of the April Business Conditions Index were new orders at 59.5, down from March’s 65.7; production or sales at 59.5, down from 63.0; and delivery lead time at 62.0, up from 57.2 in March.

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 Creighton’s monthly survey of supply managers advanced for the sixth time in the past seven months to a regional high of 74.7, up from March’s 71.8. Components of the index for April were new orders at 86.5, production or sales at 87.0, delivery lead time at 69.0, inventories at 60.4, and employment at 70.5. “An improvement in the state’s economy has encouraged new entrants into the workforce. As a result, the state’s unemployment rate has leveled off at an acceptably high rate. Based on our survey results over the past several months, I expect Arkansas’ unemployment rate will trend downward over the course of the next six months,” said Goss.

Iowa: For the 16th 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 69.7 from March’s 67.9. Components of the index for April were new orders at 79.4, production or sales at 71.9, delivery lead time at 69.0, employment at 65.1, and inventories at 63.1. “The weak dollar has been especially good for Iowa’s manufacturing sector particularly producers closely tied to international markets or agriculture. The weak dollar policy of the Fed will continue to bolster Iowa manufacturing and the overall state economy,” said Goss.

Kansas: The Business Conditions Index from the monthly survey of supply managers rose to 58.4 from 55.1 in March. It is the eighth time in the past nine months that the leading economic indicator for Kansas was above growth neutral. Components of the index for April were new orders at 58.0, production or sales at 54.7, delivery lead time at 67.6, employment at 65.1, and inventories at 63.1.“Firms tied to international markets and agriculture continue to report very healthy growth. However, aircraft and aerospace parts producers in the state report pullbacks in economic activity as higher fuel prices cut into sales and new orders,” said Goss.

Minnesota: Minnesota’s leading economic indicator from the monthly survey of supply managers was above growth neutral for the 21st straight month at 60.9, down from 67.9 in March. Components of the index for April were new orders at 65.0, production or sales at 65.9, delivery lead time at 60.4, inventories at 57.2, and employment at 56.2. “Durable goods manufacturing continues to benefit from healthy international sales and new orders. Computer and electronic component manufacturers and food producers also reported upturns in business activity for the month,” said Goss.

Missouri: The Missouri Business Conditions Index climbed above growth neutral to 57.2, but down from 59.8 in March. The index, a leading economic indicator based on a survey of supply managers continues to point to growth in the months ahead. Components of the Business Conditions Index for April were new orders at 56.1, production or sales at 58.1, delivery lead time at 61.2, inventories at 55.8, and employment at 55.0. “Durable goods manufacturers are reporting much healthier business activity than nondurable producers. Food processing firms in the state report downturns in economic activity stemming from significantly higher input prices,” said Goss.

Nebraska: Nebraska’s Business Conditions Index, a leading economic indicator, moved above growth neutral 50.0 for the sixth straight month. The index from a survey of supply managers slipped to 54.4 from March’s 58.9. Components of the index for April were new orders at 56.7, production or sales at 56.0, delivery lead time at 54.7, inventories at 51.2, and employment at 53.6. “The cheap dollar has been an important stimulant to the Nebraska economy. Firms tied to international markets or agriculture are experiencing rapidly improving business activity. The Fed’s cheap dollar policy will continue to be an important component of the state’s recent growth. Significantly higher input prices have yet to derail economic expansion among food processors in the state,” 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 slipped to 56.1 from 56.3 in March. Components of the index for April were new orders at 54.7, production or sales at 49.5, delivery lead time at 69.5, employment at 42.0, and inventories at 64.7. “North Dakota is benefiting from growth in both energy prices and agriculture commodity prices. As long as the dollar does not rebound, the state’s economy will continue on a solid growth path. The Fed weak dollar policy has been very positive for the state’s economy,” said Goss.

Oklahoma: For the 17th straight month, Oklahoma’s leading economic indicator climbed above growth neutral. The Business Conditions Index from a monthly survey of supply managers dipped to a still robust 68.8 from 76.1 in March. Components of the index for April were new orders at 74.3, production or sales at 71.2, delivery lead time at 76.8, inventories at 64.8, and employment at 57.1. “High energy prices are fueling economic expansion in the state. Durable goods manufacturers linked to international markets or energy are experiencing solid growth. High input prices have failed to slow growth among food processors in the state. On the other hand, telecommunication firms in Oklahoma continue to experience pullbacks in economic activity,” said Goss.

South Dakota: South Dakota’s leading economic indicator once again rose above growth neutral. The Business Conditions Index from a monthly survey of supply managers, dipped to a still healthy 61.2 from March’s 64.5. Components of the index for April were new orders at 68.1, production or sales at 68.3, delivery lead time at 45.8, inventories at 56.1, and employment at 67.9. “Manufacturers in the state tied to agriculture and international markets continue to report solid upturns in sales, new orders and jobs. This expansion will drive overall economic growth in the state in a positive direction for the next three to six months,” said Goss.

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