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Mid-America Leading Economic Indicator Points to Strong Growth

Inflation Gauge Soars for February

February survey results at a glance:

  • For a second straight month, the region’s leading economic indicator rose to a healthy level.
  • For a second straight month, net new hiring was strong.
  •   Inflation gauge signals excessive wholesale inflation in the months ahead.

The monthly Business Conditions Index for the nine-state, Mid-America region rose to a level consistent with healthy economic growth. The index, a leading economic indicator from a monthly survey of supply managers, points to improving growth for the region over the next three to six months.

Overall index: The index, which ranges between 0 and 100, climbed to 58.4 from 55.9 in January. “Initially, economic growth was primarily limited to the agriculture and energy sectors and to firms linked to them. Our recent surveys indicate that this healthy growth has now spread to most industries, except for construction, across the region,” 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.

“Last month almost half of our survey respondents assessed rising energy prices as the greatest threat to growth prospects for their firm. This risk has risen to levels we have not seen since 2008. Any significant increase in energy prices could reduce the growth outlook for the region. However, at this time, energy prices are not having any significant negative impacts on current and anticipated growth for the region,” said Goss.

Employment: For a second straight month, the employment index climbed above growth neutral. The hiring gauge increased to a strong 57.5 from January’s healthy 54.5. “Employment growth over the past 12 months has been a bit over 1 percent. Based on our survey results, I expect that growth to accelerate to 1.5 percent (annualized) by the middle of 2012,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, expanded to a robust 74.7 from January’s already inflationary 67.8. “Given the excessive inflationary pressures we are tracking in our survey and vigorous growth expected in the months ahead, I think the Federal Reserve will have to violate their pledge to keep short term interest rates at their current record lows until 2014,” said Goss. “In my judgment, the Fed’s pro-growth stance poses significant inflation risks even as it boosts growth for firms connected to agriculture and energy. Thus, I expect a Fed rate hike as early as the final quarter of 2012.”

“Our regional gauge and most national measures of price pressures are too high for the Fed to be so aggressive in terms of low interest rates and high money supply growth. I attribute at least half of the increase in 2012 oil prices to declines in the value of the dollar precipitated by the easy money policy of the Fed,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February business confidence index, slumped to a still healthy 61.0 from 67.2 in January. “Higher oil and gasoline prices pushed regional business confidence lower. Despite higher energy and commodity prices, recent positive economic data on the national front have had clear and positive impacts on supply mangers’ outlook,” said Goss.

Inventories: The February inventory reading slipped to 54.2 from January’s 55.3. “Healthy inventory growth signals expected production expansions in the months ahead and is consistent with the strong business confidence reading for the month,” said Goss.

Trade: February’s export numbers for the Mid-America region dipped a bit from January’s healthy level declining to 55.3 from January’s vigorous 60.4. At the same time, February imports slipped slightly to 56.6 from January’s 56.7. “Exports continue to be an important source of growth for the region. Additionally, an expanding regional economy has pushed firms to increase their purchases from abroad,” said Goss.

Other components: Other components of the February Business Conditions Index were new orders at 58.4, up from 58.1 in January; production or sales at 60.9, up from 56.9; and delivery at 56.4 from January’s 54.7.

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 overall index for Arkansas slipped to a still solid 55.5 from January’s 56.0. Components of the index were new orders at 55.5, production or sales at 53.5, delivery lead time at 67.4, inventories at 38.8, and employment at 63.2. “Since the beginning of the recession, Arkansas has lost more than 33,000 manufacturing jobs, or 17.6 percent. Our surveys over the past several months indicate that manufacturers in the state will increase their hiring in the months ahead. However, I expect those manufacturers to continue to expand output with increases in productivity and expansions in the average hourly work week limiting job growth,” said Goss.

Iowa: For the 26th straight month, Iowa’s Business Conditions Index remained above growth neutral. The index, from a survey of supply managers, climbed to a robust 66.5 from January’s regional high 66.0. Components of the index for February were new orders at 76.0, production or sales at 67.9, delivery lead time at 55.3, employment at 63.6, and inventories at 69.5. “Since the beginning of the recession, Iowa has lost almost 22,000, or 9.4 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase their hiring in the months ahead. However, this hiring will be limited somewhat by increases in productivity,” said Goss.

Kansas: The Kansas Business Conditions Index for February rebounded to 53.7 from January’s regional low of 47.0. Components of the index for February were new orders at 53.0, production or sales at 52.3, delivery lead time at 54.1, employment at 51.8, and inventories at 57.3. “Since the beginning of the recession, Kansas has lost more than 23,000, or 12.5 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. However, this hiring will be limited somewhat by increases in productivity,” said Goss.

Minnesota: The February Minnesota Business Conditions Index was above growth neutral for the 30th straight month. The index expanded to 58.3 from January’s 57.5. Components of the index for February were new orders at 63.8, production or sales at 65.7, delivery lead time at 54.0, inventories at 53.8, and employment at 53.9. “Since the beginning of the recession, Minnesota has lost more than 42,000, or 9.4 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

Missouri: The February Missouri Business Conditions Index climbed above growth neutral for February. The index, a leading economic indicator from a survey of supply managers, increased to 53.8 from January’s tepid 51.0. Components of February’s Business Conditions Index were new orders at 55.9, production or sales at 53.3, delivery lead time at 56.0, inventories at 49.8, and employment at 57.8. “Since the beginning of the recession, Missouri has lost more than 45,000, or 15.2 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. The pace of new hiring will be healthy. However, this hiring will be limited somewhat by increases in productivity and expansions in average hours worked per week for current employees,” said Goss.

Nebraska: The February Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 16th straight month. The index, a leading economic indicator from a survey of supply managers, increased to 56.2 from 51.9 in January. Components of the index were new orders at 59.1, production or sales at 55.9, delivery lead time at 54.3, inventories at 54.0, and employment at 57.8. “Since the beginning of the recession, Nebraska has lost approximately 7,000 or 6.8 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

North Dakota: The leading economic indicator for North Dakota bounced higher for February. The Business Conditions Index from a survey of supply managers in the state climbed to 61.0 from January’s 60.3. Components of the overall index for February were new orders at 70.3, production or sales at 67.8, delivery lead time at 59.7, employment at 55.0, and inventories at 52.0. “Even though the state has a higher level of employment today than before the recession, the state has lost 2,400, or 9.1 percent, of its manufacturing jobs. Our surveys over the past several months point to gains in manufacturing jobs in the months ahead even though productivity growth and increases in the average hourly work week will somewhat limit the new hiring,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma, a leading economic indicator from a survey of supply managers in the state, fell to a still healthy 56.9 from January’s 58.3. Components of the leading economic indicator for February were new orders at 53.3, production or sales at 53.8, delivery lead time at 69.2, inventories at 53.5, and employment at 55.6. “Since the beginning of the recession, Oklahoma has lost more than 14,000, or 9.3 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

South Dakota: South Dakota’s leading economic indicator rose to a healthy level for February. The Business Conditions Index rose to 58.9 from January’s 52.8. Components of the index for February were new orders at 58.0, production or sales at 65.3, delivery lead time at 48.6, inventories at 62.0, and employment at 60.6. “Since the beginning of the recession, South Dakota has lost almost 4,000, or 9.3 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

Survey results for March will be released April 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/

Inflation Gauge Soars for February

February survey results at a glance:

  • For a second straight month, the region’s leading economic indicator rose to a healthy level.
  • For a second straight month, net new hiring was strong.
  •   Inflation gauge signals excessive wholesale inflation in the months ahead.

The monthly Business Conditions Index for the nine-state, Mid-America region rose to a level consistent with healthy economic growth. The index, a leading economic indicator from a monthly survey of supply managers, points to improving growth for the region over the next three to six months.

Overall index: The index, which ranges between 0 and 100, climbed to 58.4 from 55.9 in January. “Initially, economic growth was primarily limited to the agriculture and energy sectors and to firms linked to them. Our recent surveys indicate that this healthy growth has now spread to most industries, except for construction, across the region,” 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.

“Last month almost half of our survey respondents assessed rising energy prices as the greatest threat to growth prospects for their firm. This risk has risen to levels we have not seen since 2008. Any significant increase in energy prices could reduce the growth outlook for the region. However, at this time, energy prices are not having any significant negative impacts on current and anticipated growth for the region,” said Goss.

Employment: For a second straight month, the employment index climbed above growth neutral. The hiring gauge increased to a strong 57.5 from January’s healthy 54.5. “Employment growth over the past 12 months has been a bit over 1 percent. Based on our survey results, I expect that growth to accelerate to 1.5 percent (annualized) by the middle of 2012,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, expanded to a robust 74.7 from January’s already inflationary 67.8. “Given the excessive inflationary pressures we are tracking in our survey and vigorous growth expected in the months ahead, I think the Federal Reserve will have to violate their pledge to keep short term interest rates at their current record lows until 2014,” said Goss. “In my judgment, the Fed’s pro-growth stance poses significant inflation risks even as it boosts growth for firms connected to agriculture and energy. Thus, I expect a Fed rate hike as early as the final quarter of 2012.”

“Our regional gauge and most national measures of price pressures are too high for the Fed to be so aggressive in terms of low interest rates and high money supply growth. I attribute at least half of the increase in 2012 oil prices to declines in the value of the dollar precipitated by the easy money policy of the Fed,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February business confidence index, slumped to a still healthy 61.0 from 67.2 in January. “Higher oil and gasoline prices pushed regional business confidence lower. Despite higher energy and commodity prices, recent positive economic data on the national front have had clear and positive impacts on supply mangers’ outlook,” said Goss.

Inventories: The February inventory reading slipped to 54.2 from January’s 55.3. “Healthy inventory growth signals expected production expansions in the months ahead and is consistent with the strong business confidence reading for the month,” said Goss.

Trade: February’s export numbers for the Mid-America region dipped a bit from January’s healthy level declining to 55.3 from January’s vigorous 60.4. At the same time, February imports slipped slightly to 56.6 from January’s 56.7. “Exports continue to be an important source of growth for the region. Additionally, an expanding regional economy has pushed firms to increase their purchases from abroad,” said Goss.

Other components: Other components of the February Business Conditions Index were new orders at 58.4, up from 58.1 in January; production or sales at 60.9, up from 56.9; and delivery at 56.4 from January’s 54.7.

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 overall index for Arkansas slipped to a still solid 55.5 from January’s 56.0. Components of the index were new orders at 55.5, production or sales at 53.5, delivery lead time at 67.4, inventories at 38.8, and employment at 63.2. “Since the beginning of the recession, Arkansas has lost more than 33,000 manufacturing jobs, or 17.6 percent. Our surveys over the past several months indicate that manufacturers in the state will increase their hiring in the months ahead. However, I expect those manufacturers to continue to expand output with increases in productivity and expansions in the average hourly work week limiting job growth,” said Goss.

Iowa: For the 26th straight month, Iowa’s Business Conditions Index remained above growth neutral. The index, from a survey of supply managers, climbed to a robust 66.5 from January’s regional high 66.0. Components of the index for February were new orders at 76.0, production or sales at 67.9, delivery lead time at 55.3, employment at 63.6, and inventories at 69.5. “Since the beginning of the recession, Iowa has lost almost 22,000, or 9.4 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase their hiring in the months ahead. However, this hiring will be limited somewhat by increases in productivity,” said Goss.

Kansas: The Kansas Business Conditions Index for February rebounded to 53.7 from January’s regional low of 47.0. Components of the index for February were new orders at 53.0, production or sales at 52.3, delivery lead time at 54.1, employment at 51.8, and inventories at 57.3. “Since the beginning of the recession, Kansas has lost more than 23,000, or 12.5 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. However, this hiring will be limited somewhat by increases in productivity,” said Goss.

Minnesota: The February Minnesota Business Conditions Index was above growth neutral for the 30th straight month. The index expanded to 58.3 from January’s 57.5. Components of the index for February were new orders at 63.8, production or sales at 65.7, delivery lead time at 54.0, inventories at 53.8, and employment at 53.9. “Since the beginning of the recession, Minnesota has lost more than 42,000, or 9.4 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

Missouri: The February Missouri Business Conditions Index climbed above growth neutral for February. The index, a leading economic indicator from a survey of supply managers, increased to 53.8 from January’s tepid 51.0. Components of February’s Business Conditions Index were new orders at 55.9, production or sales at 53.3, delivery lead time at 56.0, inventories at 49.8, and employment at 57.8. “Since the beginning of the recession, Missouri has lost more than 45,000, or 15.2 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. The pace of new hiring will be healthy. However, this hiring will be limited somewhat by increases in productivity and expansions in average hours worked per week for current employees,” said Goss.

Nebraska: The February Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 16th straight month. The index, a leading economic indicator from a survey of supply managers, increased to 56.2 from 51.9 in January. Components of the index were new orders at 59.1, production or sales at 55.9, delivery lead time at 54.3, inventories at 54.0, and employment at 57.8. “Since the beginning of the recession, Nebraska has lost approximately 7,000 or 6.8 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

North Dakota: The leading economic indicator for North Dakota bounced higher for February. The Business Conditions Index from a survey of supply managers in the state climbed to 61.0 from January’s 60.3. Components of the overall index for February were new orders at 70.3, production or sales at 67.8, delivery lead time at 59.7, employment at 55.0, and inventories at 52.0. “Even though the state has a higher level of employment today than before the recession, the state has lost 2,400, or 9.1 percent, of its manufacturing jobs. Our surveys over the past several months point to gains in manufacturing jobs in the months ahead even though productivity growth and increases in the average hourly work week will somewhat limit the new hiring,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma, a leading economic indicator from a survey of supply managers in the state, fell to a still healthy 56.9 from January’s 58.3. Components of the leading economic indicator for February were new orders at 53.3, production or sales at 53.8, delivery lead time at 69.2, inventories at 53.5, and employment at 55.6. “Since the beginning of the recession, Oklahoma has lost more than 14,000, or 9.3 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

South Dakota: South Dakota’s leading economic indicator rose to a healthy level for February. The Business Conditions Index rose to 58.9 from January’s 52.8. Components of the index for February were new orders at 58.0, production or sales at 65.3, delivery lead time at 48.6, inventories at 62.0, and employment at 60.6. “Since the beginning of the recession, South Dakota has lost almost 4,000, or 9.3 percent of its manufacturing jobs. Our surveys over the past several months indicate that manufacturers in the state will increase hiring in the months ahead. While the pace of new hiring will be healthy, it will be limited somewhat by increases in productivity,” said Goss.

Survey results for March will be released April 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/