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Mid-America Leading Economic Indicator Flat for December

Business Confidence Soars

December survey results at a glance:

  • Leading economic indicator flat at growth neutral for December.
  • Compared to 2011, approximately 54 percent of supply managers expect sales growth for 2012.
  • Employment gauge falls below growth neutral for the fifth straight month.
  • Business confidence index soars.
  • On average supply managers expect a 1.6 percent pay raise in 2012.

For the second time in the past three months, the Business Conditions Index for the nine-state, Mid-America region did not move above growth neutral 50.0. The index, a leading economic indicator from a monthly survey of supply managers, continues to point to slow to no growth for the region for the next three to six months.

Overall index: The index, which ranges between 0 and 100, sank to 50.0 for December from 52.6 in November. “While the reading is well above recessionary values for 2008 and early 2009, our surveys over the past several months indicate that 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.

This month supply managers were asked to project sales or business activity for 2012. One-third of the respondents anticipate no change from 2011 levels, 54.4 percent expect an improvement in 2012, while 12.3 percent expect a decline in sales for 2012 compared to 2011.

For 2011 from high to low gross domestic product (GDP) growth, the ranking of the nine states was: 1) North Dakota, 2) Oklahoma, 3) Nebraska, 4) South Dakota, 5) Iowa, 6) Kansas, 7) Arkansas, 8) Minnesota, and 9) Missouri.

For 2012 from high to low GDP growth, projected GDP growth of the nine states is: 1) North Dakota, 2) Oklahoma 3) Nebraska, 4) Minnesota, 5) Iowa, 6) South Dakota, 7) Kansas, 8) Arkansas, and 9) Missouri.

Employment: For a fifth straight month, the employment index remained below growth neutral and was unchanged from November’s 49.5. “Our surveys over the last five months indicate that job growth in the region has slowed significantly. Furthermore, I expect job additions for the first half of 2012 to be below the same period for 2011. However, there will be significant variation among the nine states,” said Goss.

Reflecting the weak job market, supply managers were less than optimistic regarding pay increases for 2012 with an average boost in pay of 1.6 percent for the year. Almost one-third, or 30 percent, anticipates a pay cut or no change in pay for 2012.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, rose to 62.4 from November’s 60.9. “European debt problems and slower regional growth have pushed our inflation gauge lower. Over the past two months, due to investors flight out of European debt into U.S. debt, the value of the U.S. dollar has increased 5.3 percent. The upturn in the value of the dollar has helped push commodity prices and our inflation gauge lower,” said Goss.

Inventories: For the second time in the past three months, the regional inventory index dropped below growth neutral. The December reading slipped to 46.7 from November’s 52.9 and October’s 48.5. “Since the end of the recession in 2009, inventory accumulation has been an important source of regional growth. December’s decline was an important factor driving the overall reading lower,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, soared to 59.2 from November’s weak 49.1. “Despite weaker readings among current business factors, supply managers were much more optimistic about future economic conditions. “It is clear that news reports of improving U.S. economic conditions is having a positive impact on the business outlook among supply manages even with the problems surrounding Europe,” said Goss.

Trade: December’s export numbers for the Mid-America region were significantly improved from November’s weaker values. New export orders rose to 56.3 from 52.1 in November. The December import index once again sank below growth neutral with a reading of 48.0, down from 49.5 in November. “Economic weakness among firms in the region has meant that supply managers have reduced their purchases from abroad even with lower prices for imported goods,” said Goss.

Other components: Other components of the December Business Conditions Index were new orders at 52.3, up slightly from November’s 52.0; production or sales at 48.4, down from 52.4; and delivery lead time at 53.3, lower than 56.5 in November.

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: Arkansas’ leading economic indicator plummeted to a level pointing to slow growth in the months ahead. The December index from a survey of supply managers in the state fell to 52.0 from November’s 63.0. Components of the index were new orders at 47.2, production or sales at 51.8, delivery lead time at 53.1, inventories at 55.1, and employment at 52.3. “Manufacturers in the state, both durable and nondurable, have actually reduced employment at the same time that they have increased production. As a result of higher productivity and increases in the hours worked for current employees, manufacturing activity expanded significantly for 2011. I expect this rate of growth to weaken for the first half of 2012,” said Goss. Estimated 2011 growth: Jobs 0.6 percent, inflation adjusted GDP 2.0 percent. Projected 2012 growth: Jobs 0.3 percent, inflation adjusted GDP 1.6 percent.

Iowa: For the 24th straight month, Iowa’s Business Conditions Index remained above growth neutral. The index, from a survey of supply managers, slipped to 56.3 from 57.7 in November. Components of the index were new orders at 65.3, production or sales at 53.9, delivery lead time at 55.8, employment at 56.6, and inventories at 50.2. “Both durable and nondurable goods manufacturers reported strong business conditions for the month. Manufacturers in Iowa had a very good 2011 as they added to their payrolls. Food, processed, unprocessed and exported, was a big driver for the state’s economy. While strength in the U.S. dollar and a weaker global economy will be a challenge, the state’s economy will perform well for the first half of 2012,” said Goss. Estimated 2011 growth: Jobs 0.7 percent, inflation adjusted GDP 2.3 percent. Projected 2012 growth: Jobs 0.9 percent, inflation adjusted GDP 2.4 percent.

Kansas: The Business Conditions Index, a leading economic indicator for Kansas, slipped to 50.1 from 50.9 in November. The survey is pointing to slow growth for the Kansas economy in the months ahead. Components of the index were new orders at 51.0, production or sales at 51.1, delivery lead time at 46.3, employment at 52.8, and inventories at 49.4. “Both durable and nondurable goods manufacturers reported solid business conditions for the month and for most of 2011. However a stronger U.S. dollar and weaker global growth will slow growth for the state’s economy for the first half of 2012. However that growth will still be positive,” said Goss. Estimated 2011 growth: Jobs 0.7 percent, inflation adjusted GDP 2.2 percent. Projected 2012 growth: Jobs 0.6 percent, inflation adjusted GDP 2.1 percent.

Minnesota: The Minnesota Business Conditions Index, a leading economic indicator, was above growth neutral for the 29th straight month at 56.9 and up from 54.7 in November. Components of the index for December were new orders at 57.7, production or sales at 64.1, delivery lead time at 63.0, inventories at 52.7, and employment at 46.9. “Durable goods manufacturers, especially those dependent on exports and agriculture, continue to experience healthy growth as non-durable goods producers detailed pullbacks in recent months,” said Goss. Estimated 2011 growth: Jobs 0.4 percent, inflation adjusted GDP 1.9 percent. Projected 2012 growth: Jobs 1.2 percent, inflation adjusted GDP 2.8 percent.

Missouri: The December Missouri Business Conditions Index rose from November’s weak reading but remained below growth neutral. The index, a leading economic indicator from a survey of supply managers, climbed to 49.0 from November’s 47.3. Components of the Business Conditions Index were new orders at 47.6, production or sales at 50.1, delivery lead time at 55.5, inventories at 46.1, and employment at 45.6. “Once again, durable goods manufacturers reported solid business conditions for the month. However, this growth was more than offset by economic pullbacks among nondurable producers and value-added service firms. Average hourly wage gains for Missouri manufacturers has significantly lagged that of manufacturers in other states in the region,” said Goss. Estimated 2011 growth: Jobs 0.1 percent, inflation adjusted GDP 0.9 percent. Projected 2012 growth: Jobs -0.7 percent, inflation adjusted GDP 0.1 percent.

Nebraska: The December Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 14th straight month. The index, a leading economic indicator from a survey of supply managers fell to 51.4 from 55.2 in November. Components of the index were new orders at 50.2, production or sales at 45.5, delivery lead time at 53.7, inventories at 53.1, and employment at 54.3. “Both durable and non-durable manufacturers experienced a very positive month and year. Contrary to firms in other Mid-America states, Nebraska manufacturers expanded employment while holding average weekly work hours little changed,” said Goss. Estimated 2011 growth: Jobs 1.6 percent, inflation adjusted GDP 2.8 percent. Projected 2012 growth: Jobs 2.0 percent, inflation adjusted GDP 3.3 percent.

North Dakota: The leading economic indicator for North Dakota remains healthy though it declined for December. The Business Conditions Index sank to 55.6 from November’s 57.9. Components of the index for December were new orders at 56.3, production or sales at 54.5, delivery lead time at 55.6, employment at 53.4, and inventories at 58.1. “Durable goods producers outperformed nondurable goods manufacturers for the month and for the year. Manufacturers increased employment, hours worked and wages significantly for 2011. I expect this to continue for 2012 but at a somewhat slower pace,” said Goss. Estimated 2011 growth: Jobs 4.5 percent, inflation adjusted GDP 6.8 percent. Projected 2012 growth: Jobs 3.4 percent, inflation adjusted GDP 5.7 percent.

Oklahoma: The Business Conditions Index for Oklahoma declined in December to 52.1 from November’s 52.5. Components of the leading economic indicator for December were new orders at 52.3, production or sales at 52.1, delivery lead time at 54.8, inventories at 53.4, and employment at 51.0. “Durable goods manufacturers expanded business for the month and year. Pullbacks were recorded for nondurable goods manufacturers,” said Goss. Estimated 2011 growth: Jobs 2.8 percent, inflation adjusted GDP 4.6 percent. Projected 2012 growth: Jobs 1.5 percent, inflation adjusted GDP 3.3 percent.

South Dakota: The state’s leading economic indicator declined below growth neutral for December. The Business Conditions Index, from a monthly survey of supply managers, slumped to 47.7 from 50.3 in November. Components of the index for December were new orders at 47.2, production or sales at 41.2, delivery lead time at 44.6, inventories at 47.9, and employment at 57.4. “Contrary to earlier in the year, manufacturing in the state tied to international markets and to agriculture and energy experienced pullbacks over the past few months. I expect this slower growth to extend into 2012,” said Goss. Estimated 2011 growth: Jobs 0.6 percent, inflation adjusted GDP 2.7 percent. Projected 2012 growth: Jobs 0.3 percent, inflation adjusted GDP 2.4 percent.

Survey results for January will be released Feb. 1.

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