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Mid-America Leading Economic Indicator Inches Forward

Very Weak Fourth Quarter Ahead for Region

September survey results at a glance:

  • After two straight months of below growth neutral readings, the leading economic indicator moved above this threshold for the month.
  • Lowest employment gauge in over three years, indicates job losses for September.
  • Export orders index sink below growth neutral for third straight month.
  • Indicators point to slight positive economic growth for the final quarter of 2012.

After two straight months below growth neutral the monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, inched above this threshold for September. Surveys over the past several months signal zero to slight positive economic growth for the region for the final quarter of 2012.

Overall index: The Business Conditions Index, which ranges between 0 and 100, rose to a weak 50.4 from 49.7 in August. “Growth in the regional economy has definitely slowed. Surveys over the past several months point to flat to slight growth for the fourth quarter of this year. However, two states with significant dependence on energy, North Dakota and Oklahoma, will continue to expand at a solid pace in the final quarter of the year according to our survey results,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Employment: The economic slowdown is pushing the regional employment index lower. The index once again sank below growth neutral to a weak 46.1 from 49.5 in August. This is lowest job reading recorded since shortly after the recession ended in 2009. “The manufacturing sector has been shedding jobs over the past several months. I expect the regional economy to lose both manufacturing and non-manufacturing jobs, albeit at a slow pace, in the final quarter of 2012. Gains for Iowa, North Dakota and Oklahoma will be more than offset by losses for the other six states in the region,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, advanced to 66.0 from August’s 65.2 and was much higher than July’s 51.1. “The combination of drought conditions and the Federal Reserve’s easy or cheap money policies are driving the wholesale level higher. Higher food and commodity prices at the wholesale level, as indicated in our surveys, will surface in upturns in consumer prices in the months ahead,” said Goss.

Furthermore over the next six months, supply managers expect the costs of inputs they purchase to rise by 3.0 percent. This is significantly higher than July’s 2.1 percent expected rise. “Thus both current and future expected price growth are heading higher. While I do not expect rampant inflationary pressures in the months ahead, it is clear that the recent period of very benign inflation is coming to an end,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the September business confidence index, climbed slightly to a weak 44.7 from August’s 44.3. “Supply managers, much like the entire business sector, remain very pessimistic regarding future economic conditions. The looming fiscal cliff, the elections, and European economic turmoil are all weighing on economic confidence,” said Goss.

Inventories: Regional inventory levels continued to decline, but at a slower rate with a September inventory index increasing to 49.2 from August’s 47.3. “Supply managers have cut inventories for three straight months. This is yet another signal of economic pessimism as supply managers cut the inventory levels in anticipation of slower production and/or sales in the months ahead,” said Goss.

Trade: New export orders once again declined for the month but at a slightly slower rate than for August. The new export orders index advanced to 48.7 from 48.3 in August. At the same time, September imports contracted for the month with an index of 48.9, down from 51.4 in August. “Weaker global and regional economic growth contracted both import and export readings. Given the importance of exports to past regional growth, the downturn in new export orders is another factor that will contribute to a final quarter that is lackluster,” said Goss.

Other components: Other components of the September Business Conditions Index were new orders at 48.7, up from 46.1 in August; production or sales at 51.7, up from 49.5; and delivery lead time at 56.4, up from 56.2 in August.

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.

Arkansas: The September overall index, or leading economic indicator, for Arkansas slipped to 49.6 from August’s 51.2. Components of the index from the monthly survey of supply managers for September were new orders at 43.5, production or sales at 49.6, delivery lead time at 50.3, inventories at 50.5, and employment at 54.0. “Job growth in the state has slipped over the past several months. Our recent surveys indicate that the Arkansas’ job growth will continue to decline for the final quarter of the year with no new net job gains. Job gains for durable goods producers will be offset by losses for nondurable goods manufacturers. The 2012 drought will continue to restrain retail sales in the state,” said Goss.

Iowa: Iowa’s September Business Conditions Index declined to 56.5 from 57.1 in August. The overall index has remained above growth neutral for the last 33 months. Components of the index for September were new orders at 59.6, production or sales at 55.4, delivery lead time at 58.8, employment at 53.2, and inventories at 55.5. “Both durable and nondurable goods manufacturers continue to report expanding economic conditions with job gains. The 2012 drought has yet to put a dent in business activity for agriculture equipment manufacturers in the state, but has negatively influenced retail sales,” said Goss.

Kansas: The Kansas Business Conditions Index for September sank 47.3 from August’s 48.0. Components of the index from the September survey of supply managers in the state were new orders at 45.5, production or sales at 53.1, delivery lead time at 46.8, employment at 45.3, and inventories at 46.0. “Surveys over the last several months point to no job gains for Kansas for the final quarter of 2012. The 2012 drought will continue to weigh on businesses linked to agriculture in the state. Pullbacks in exports will negatively impact the state’s economy in the fourth quarter of 2012,” said Goss.

Minnesota: For a third straight month, the Minnesota Business Conditions Index slumped below growth neutral. The index, based on a survey of supply managers in the state, decreased to 47.2 from 49.7 in August. This is the first time since the recession that the overall index has been below 50.0 for three straight months. Components of the index from the September survey were new orders at 36.8, production or sales at 42.9, delivery lead time at 60.4, inventories at 50.3, and employment at 45.8. “Very strong job growth for the first half of 2012 will be replaced by zero to slightly negative employment gains for the final quarter of 2012. Job gains for durable goods producers will be more than offset by job losses for nondurable goods manufacturers, including food processors,” said Goss.

Missouri: The September Missouri Business Conditions Index slipped to 51.0 from August’s 53.9. Components of the survey of supply managers in the state for September were new orders at 49.9, production or sales at 52.0, delivery lead time at 54.4, inventories at 45.4, and employment at 53.1. “Durable goods producers in Missouri continue to report very healthy growth. However, nondurable goods manufacturers are experiencing pullbacks in economic activity. Additionally, businesses linked to agriculture continue to be negatively influenced by the 2012 drought. Job additions for the final quarter of 2012 will be less than one-fourth of that experienced in the first quarter of 2012,” said Goss.

Nebraska: After slipping below growth neutral for two straight months, Nebraska’s leading economic indicator moved above 50.0 for September. The Business Conditions Index advanced to a weak 50.3 from 47.8 in August. Components of the index for September were new orders at 46.3, production or sales at 49.9, delivery lead time at 55.8, inventories at 52.0, and employment at 47.7. “Job growth will be flat for the final quarter of 2012 for Nebraska. Gains for durable goods producers will be offset by losses for nondurable goods manufacturers, including food processors,” said Goss.

North Dakota: The leading economic indicator for North Dakota expanded to a regional high for September. The Business Conditions Index from the survey of supply managers increased to 61.6 from August’s 57.4, also a regional high. Components of the overall index for September were new orders at 70.9, production or sales at 74.7, delivery lead time at 64.2, employment at 52.3, and inventories at 45.9. “All sectors of the North Dakota economy continue to expand at a solid pace. However, industries and firms with close ties to energy are growing at a very healthy pace with labor shortages reported in some areas of the state,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma advanced for September. The leading economic indicator from the supply manager survey climbed to 56.6 from 53.6 in August. Components of the September survey of supply managers in the state were new orders at 54.8, production or sales at 49.5, delivery lead time at 78.1, inventories at 42.0, and employment at 58.4. “Durable goods producers in Oklahoma, such as metal product manufacturers, are expanding at a very healthy pace. This expansion is more than offsetting losses for nondurable goods manufacturers such as food processors. Surveys over the past several months point to solid gains and a reduction in the state’s unemployment rate by 0.3 percentage points in by the end of the year,” said Goss.

South Dakota: For a third straight month, the leading economic indicator for South Dakota declined below growth neutral. The Business Conditions Index from a survey of supply managers in the state slipped to 46.6 from August’s 47.2. Components of the index for September were new orders at 42.9, production or sales at 50.7, delivery lead time at 49.9, inventories at 45.4, and employment at 44.1. “Manufacturing growth has stymied over the past several months. Companies in South Dakota continue to expand sales and output via increases in the hours worked of current employees rather than adding new workers. Job growth will be flat for the final quarter of 2012,” said Goss.

Survey results for October will be released Nov. 1.

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

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