August survey results at a glance:
• Leading economic indicator falls for the fifth time in past six months.
• Employment gauge falls below growth neutral.
• Business confidence tumbles to levels experienced in recession.
• A weak regional economy pushed imports lower.
Mid-America Firms Reduce Employment for August:
Business Confidence Slumps to Recession Levels
For the fifth time in the past six months, the Business Conditions Index for the nine-state Mid-America region fell. The index, a leading economic indicator from a monthly survey of supply managers, points to slowing regional growth for the next three to six months.
Overall index: The index which ranges between 0 and 100, slumped to 52.0 from 54.1 in July. While this is the 21st consecutive month that the index has been above growth neutral 50.0, the reading for August was the lowest that we have recorded since December 2009 and clearly indicates that regional growth is waning with an increasing likelihood of a recession. However at this time, our gauge is signaling slow to no growth, not a recession.
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 .
“Despite healthy growth tied to agriculture, the Mid-America region is being negatively affected by pullbacks in business, consumer and local government spending. This month we asked supply managers what the expected sales growth was for their company for the rest of 2011. Approximately 22 percent expect a decline in business activity, 41.8 percent anticipate an upturn in sales and the remaining 36.2 percent expect no change in business activity for the rest of 2011,” Creighton University Economics Professor Ernie Goss said today.
Employment: After 19 straight months of employment readings above growth neutral the gauge moved below 50.0 for August. The August reading sank to 49.0 from 53.1 in July. “This is the third consecutive month that the employment gauge has declined indicating the regional labor market has lost most, if not all, of its steam,” 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, rose slightly to an inflationary 71.0 from 70.9 in July. “As economic growth has slowed, so have inflationary pressures. However, inflationary pressures at the wholesale level remain too high to ignore the likelihood of excessive inflationary pressures at the consumer level. With the current Federal Reserve policy remaining very simulative, I expect inflation to climb significantly above the Fed’s target,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the August business confidence index, plummeted to 43.4 from July’s 49.5. “The uncertainty surrounding federal government and Federal Reserve actions have dampened the economic outlook of supply managers in the region. Our confidence index has now moved to levels experienced during the last recession. This month survey participants were asked to recommend policy actions by the federal government to encourage growth. Approximately 43 percent recommended cutting spending and 34 percent endorsed reducing regulatory burdens. No other federal government action garnered more than single digit support from the supply managers,” said Goss.
Inventories: Since January 2010, supply managers in the nine-state region have increased inventory levels 18 out of 20 months. “This has been an important source of regional growth. However, the rate of inventory buildup has declined significantly with an August reading of 50.5 which is down from July’s 56.2,” said Goss.
Trade: In the Mid-American region, export orders improved for August while firms pulled back on purchases from abroad. The August new export orders reading rose to 54.8 from July’s 52.4. Imports slumped to 46.6, the lowest reading since June of 2009 and down from 51.3 in July. “The relatively cheap U.S. dollar, making U.S. goods more competitively priced abroad, and a weak U.S. economy have aided exports and restrained imports,” said Goss.
Other components: Other components of the August Business Conditions Index were new orders at 51.2, up from 50.5 in July; production or sales at 54.2, up from 52.6; and delivery lead time at 55.0, down from 58.4 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: For a fourth straight month, Arkansas’ leading economic indicator from Creighton’s monthly survey of supply managers declined. The index for August dipped to 50.9 from 51.8 in July. Components of the index for August were new orders at 47.0, production or sales at 39.8, delivery lead time at 74.6, inventories at 40.5, and employment at 52.5. “Arkansas’ unemployment rate continues to grow even as the economy expands. Our surveys over the past several months point to very modest advances in economic growth in the months ahead with the number of Arkansas workers unemployed and looking for work at their highest levels ever. Manufacturing firms continue to grow their sales via higher productivity with a resultant loss in jobs,” said Goss.
Iowa: Iowa’s Business Conditions Index remained above growth neutral for the 20th straight month. The index from a survey of supply managers slipped to a regional high of 59.3 from 62.6 in July, also the highest reading in the nine-state region. Components of the index for August were new orders at 50.4, production or sales at 57.4, delivery lead time at 69.0, employment at 57.3, and inventories at 62.3. “Iowa’s economy continues to grow at a solid pace with the few negative signals. Both durable and nondurable manufacturing firms report very healthy business activity. Firms with close ties to agriculture, for example agriculture equipment manufacturing, continue to grow with large spillovers into the rest of the state economy," said Goss.
Kansas: The Business Conditions Index, a leading economic indicator for Kansas, fell to a regional low of 43.6 from 54.7 in August. This is only the second time the past 13 months that the index from our survey of supply managers in the state moved below growth neutral. Components of the index for August were new orders at 35.3, production or sales at 42.2, delivery lead time at 54.4, employment at 38.3, and inventories at 47.7. “With an economy that is dependent on the aircraft industry and trade, I normally expect to track more volatility in the Kansas survey results. We saw evidence of that volatility this month. Just as firms in and linked to the aircraft industries are experiencing pullbacks in economic activity, businesses linked to agriculture are being negatively affected by drought conditions in the state," said Goss.
Minnesota: Minnesota’s leading economic indicator from the monthly survey of supply managers was above growth neutral for the 25th straight month at 56.3, down from 57.5 in July. Components of the index for August were new orders at 57.7, production or sales at 58.2, delivery lead time at 58.7, inventories at 58.2, and employment at 48.6. “Both durable and non-durable manufacturing firms in the state are making modest gains in business activity. Medical equipment producers and metal product manufacturers are experiencing very healthy growth even as growth slows somewhat," said Goss.
Missouri: The Missouri Business Conditions Index from a monthly survey of supply managers sank to 50.7 from 51.9 in July. The index, a leading economic indicator, continues to point to much slower growth in the months ahead. Components of the Business Conditions Index for August were new orders at 50.5, production or sales at 49.8, delivery lead time at 55.6, inventories at 49.8, and employment at 47.7. “Vehicle and other transportation linked firms are experiencing a pickup in economic activity just as metal product manufacturers are detailing pullbacks in business activity. Surveys over the past several months point to little economic growth in the months ahead with the unemployment rate declining slightly due to discouraged unemployed workers leaving the workforce,” said Goss.
Nebraska: The Business Conditions Index for Nebraska moved above growth neutral 50.0 for a 10th straight month. The index, a leading economic indicator from a survey of supply managers slipped to 56.8 from July’s 57.1. Components of the index for August were new orders at 57.0, production or sales at 59.6, delivery lead time at 54.2, inventories at 56.6, and employment at 56.8. “While drought conditions have damaged business activity of firms linked to agriculture in Kansas and Oklahoma, favorable weather conditions in Nebraska have aided businesses tied to the farm sector. Nondurable manufacturers, such as food producers, are experiencing healthy economic growth. Our recent surveys show no signals of economic weakness for the overall state economy," said Goss.
North Dakota: North Dakota’s leading economic indicator from Creighton’s monthly survey of supply managers declined for the month. The Business Conditions Index fell to 50.5 from 55.1 in July. Components of the index for August were new orders at 42.2, production or sales at 48.1, delivery lead time at 62.2, employment at 53.3, and inventories at 46.8. “While our survey results have softened for North Dakota over the past several months, I expect the state’s economy to continue to grow at a healthy pace. However, the pace of that growth is likely to be somewhat less for the rest of 2011 in comparison to the first half of 2011. Durable manufacturing growth will continue to outpace that of nondurable goods producers. Companies with ties to energy will continue to benefit from oil prices above $80 per barrel,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma from a monthly survey of supply managers declined to a still healthy 56.8 from July’s 61.9. Components of the index for August were new orders at 56.7, production or sales at 51.4, delivery lead time at 69.2, inventories at 44.9, and employment at 61.7. “Oil prices above $80 per barrel have had positive impacts on many of the firms that we survey each month. For example, durable goods manufacturers such as mining machinery manufacturing firms are experiencing very positive growth and growth prospects. Nondurable goods manufacturers such as food processors in the state, on the other hand, report being negatively affected by the higher energy prices,” said Goss.
South Dakota: South Dakota’s leading economic indicator once again climbed above growth neutral. The Business Conditions Index from a monthly survey of supply managers advanced to 58.5 from July’s 57.0. Components of the index for August were new orders at 61.1, production or sales at 71.9, delivery lead time at 50.3, inventories at 47.5, and employment at 61.8. “Manufacturing firms in South Dakota continue to experience healthy growth and growth prospects according to our surveys and government data. This has spilled over into nonmanufacturing firms such as wholesalers and transportation firms,” said Goss.
Survey results for September will be released on Oct. 3.
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For historical data and forecasts visit our website at: http://www.creighton.edu/business/economicoutlook/