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Mid-America Leading Economic Indicator Declines

Inflationary Pressures Sink

May survey results at a glance:

  • Leading economic indicator falls to a still healthy level.
  • Inflation gauge falls to lowest level since recession ended in June 2009.
  • Approximately 22 percent report negative economic fallout from Europe’s problems.
  • New export orders decline but remain healthy.

The monthly Business Conditions Index for the nine-state, Mid-America region indicates growing strength in the regional economy. The index, a leading economic indicator from a monthly survey of supply managers, declined for May.

Overall index: The index, which ranges between 0 and 100, fell to 57.6 from April’s 60.0. “The businesses that we survey continue to benefit from healthy farm income and exports. As a result, our survey indicates growth for the next three to six months for the region. However, it is clear that this growth is softening as a result of the stronger dollar. Europe’s economic problems are spilling over into the region via weaker commodity prices generated by the advancing U.S. dollar. Recent gains in the dollar have made U.S. goods less competitively priced abroad,” said Ernie Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

This month supply managers were asked the impact of European economic problems on their firm. Approximately 22 percent reported negative fallout from Europe’s problems. “Although exports to Europe are relatively small for most firms in the region, the impacts via the strengthening of the dollar are considerable. On a positive note, as the Euro has weakened, so have the prices of supplies from Europe. As a result, 5 percent of the survey reported positive impacts from Europe’s difficulties,” said Goss.

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 forecasting group’s 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. The 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, formerly the Purchasing Management Association, since 1931.

Employment: For a fifth straight month, the employment index climbed above growth neutral. The hiring gauge dipped to a still healthy 61.2 from 62.1 in April. “For the first five months of 2012, employment growth in the region has accelerated. I expect the region to continue to add jobs in the months ahead. However, the regional growth is likely to move lower as the global and U.S. economies weaken,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, plummeted to 59.9 from 67.8 in April. “This is the lowest reading for our inflation gauge since the recession ended in June 2009. Slower economic growth and a stronger dollar are both slowing the growth in prices for input across the board. I expect the problems in Europe and waning inflationary pressures to push the Federal Reserve to take additional actions in the months ahead. This month, we asked supply managers to project price hikes for the next six months for inputs that they buy. Supply managers anticipate that prices will grow by 2.0 percent for the next six months. Approximately 14 percent of supply managers expect price declines for inputs over this same period of time,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the May business confidence index, slumped to 55.8 from April’s robust 64.5. “The downturn in U.S. economic growth and Europe’s economic problems are definitely negatively influencing business confidence in the region,” said Goss.

Inventories: The May inventory index declined to 55.3 from 56.7 in April. “This is another signal of softening growth as supply managers slow the growth in inventory accumulation in anticipation of production pullbacks in the months ahead,” said Goss.

Trade: May’s export reading for the Mid-America region dipped to 55.1 from April’s 57.0. At the same time, May imports expanded to 57.1 from 56.7 in April. “Exports continue to be one of the most important factors driving growth in the regional economy higher. However, gains in the value of the dollar will slow growth in new export orders in the months for the nine-state region,” said Goss.

Other components: Other components of the May Business Conditions Index were new orders at 57.2 from 64.0 in April; production or sales at 61.9, up from 61.3; and delivery lead time at 52.7, down from 56.1 in April.

Arkansas: The overall index, or leading economic indicator, for Arkansas dipped to 59.4 from April’s 67.9. Components of the index from the monthly survey of supply managers were new orders at 47.6, production or sales at 72.3, delivery lead time at 55.3, inventories at 58.0, and employment at 64.2. “Non-durable goods producers in the state are lagging their durable goods counterparts. Exports have spurred growth in the heavy manufacturing sector of the state while construction activity continues on a negative growth path. Manufacturers in the state have expanded the number of hours their current employees are working,” said Goss.

Iowa: For the 29th straight month, Iowa’s Business Conditions Index remained above growth neutral. The index from a survey of supply managers in the state rose to a very healthy 67.1 from April’s 66.2. Components of the index for May were new orders at 69.5, production or sales at 70.4, delivery lead time at 52.9, employment at 70.5, and inventories at 72.4. “Both durable and non-durable goods manufacturers in Iowa are benefiting from exports and healthy expansions in farm income. Iowa’s food producers are experiencing solid growth even as their regional counterparts detail slow to no growth. Not only are manufacturers in the state adding new workers, they are also increasing the number of work-hours for their current employees,” said Goss.

Kansas: The Kansas Business Conditions Index for May declined to 50.8 from April’s 56.4. Components of the index from May’s survey of supply managers in the state were new orders at 52.2, production or sales at 44.0, delivery lead time at 58.0, employment at 53.9, and inventories at 45.9. “Except for food producers both non-durable and durable goods producers detailed expansions for May. Not only are manufacturers in the state adding new workers, they are also increasing the number of work-hours for their current employees,” said Goss.

Minnesota: The May Minnesota Business Conditions Index was above growth neutral marking the 33rd consecutive month that the state’s leading economic indicator was above growth neutral. The index, based on a survey of supply managers in the state, slipped to 60.2 from April’s 61.0. Components of the index from the May survey were new orders at 62.6, production or sales at 63.9, delivery lead time at 56.4, inventories at 53.4, and employment at 64.7. “Durable goods producers in the state, particularly those tied to international markets, are experiencing very healthy growth. On the other hand, non-durable goods producers, such as food producers, are experiencing less favorable economic conditions. Not only are durable manufacturers in the state adding new workers, they are also increasing the number of work-hours for their current employees,” said Goss.

Missouri: The May Missouri Business Conditions Index climbed above growth neutral for the month. The index, a leading economic indicator from a survey of supply managers, slipped to 59.1 from April’s 60.2. Components of May’s Business Conditions Index were new orders at 62.8, production or sales at 62.7, delivery lead time at 51.3, inventories at 60.1, and employment at 58.6. “Durable goods producers in the state, particularly those tied to international markets, are experienced very healthy growth. On the other hand, non-durable goods producers, such as food producers, are experiencing less favorable economic conditions. Not only are durable manufacturers in the state adding new workers, they are also increasing the number of work-hours for their current employees,” said Goss.

Nebraska: The May Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 19th consecutive month. The index advanced slightly to 53.6 from 53.5 in April. Components of the index were new orders at 54.5, production or sales at 55.0, delivery lead time at 52.4, inventories at 51.0, and employment at 55.3. “Nebraska’s non-durable goods producers, including food manufacturers, experienced a slow May. On the other hand, durable goods manufacturers, especially those tied to international markets and agriculture, continue to expand at a solid pace. Manufacturers in the state have not increased the hours worked by their current employees to any significant extent,” said Goss.

North Dakota: The leading economic indicator for North Dakota expanded to a very healthy reading for May. The Business Conditions Index from a survey of supply managers in the state climbed to 63.5 from April’s 62.7. Components of the overall index for May were new orders at 72.3, production or sales at 66.8, delivery lead time at 56.4, employment at 74.6, and inventories at 47.1. “Energy, agriculture and international sales continue to boost the North Dakota economy to record employment levels. Both durable and non-durable goods producers in the state are adding to their payrolls at a brisk pace in addition to expanding the hours worked by their current employees,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma slumped to a still healthy 58.7 from April’s 62.6. Components of the leading economic indicator for May were new orders at 58.0, production or sales at 54.1, delivery lead time at 67.3, inventories at 53.1, and employment at 60.9. “Durable goods manufacturers in the state, especially those tied to energy and international markets, are growing at a very healthy pace. Firms in the state are adding to their payrolls via new workers rather than expanding the hours worked by their current work force. The rising value of the dollar will soften Oklahoma’s growth as it pushes energy commodity prices down,” said Goss.

South Dakota: The leading economic indicator for South Dakota stood at healthy level for May. The Business Conditions Index from a survey of supply managers in the state dipped slightly to a still strong 62.4 from 63.2 in April. Components of the index for May were new orders at 58.1, production or sales at 69.4, delivery lead time at 48.8, inventories at 75.9, and employment at 60.1. “Manufacturers in the state continue to experience very healthy growth. As a result, they continue to expand employment and to increase the hours worked by current employees,” said Goss.

Survey results for June will be released July 2.

Follow Goss on twitter at http://twitter.com/erniegoss

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