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Mid-America Economic Indicator Declines for February

One-Third Expect Negative Fallout from Sequestration

February survey results at a glance:

  • Leading economic indicator declined for the month
  • Export orders remain weak.
  • More than one-third of companies surveyed expect the federal spending sequestration to result in a reduction in unit sales for their company.
  • Almost half of firms indicated they had expanded sustainable procurement of raw materials and supplies.

The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, dipped slightly for the month. The index is pointing to sluggish growth for the region in the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, decreased to a tepid 53.1 from 53.2 in January. “Much like the national economy, the economic trajectory of the Mid-America region will remain on a sluggish course. Even though the housing sector is clearly getting back on its feet, manufacturing, especially manufacturing connected to global markets, continues to restrain overall growth for the region and nation,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Employment: After moving below growth neutral for January, the region’s employment gauge climbed above 50.0 for February. Even so, the February reading stood at a weak 51.6, but was up from January’s 48.9.

“Employment readings over the past several months are consistent with little to no job growth in the region in the next three to six months,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, advanced to 72.6 from 71.8 in January.

“The Federal Reserve Open Market Committee, which sets U.S. interest rate policy remains committed to their current aggressive ‘cheap’ money policy. While it has not sparked any significant inflationary pressures for U.S. consumers, this policy is boosting our wholesale inflation gauge and is pushing U.S. asset prices up at a pace that is causing disruptions in certain sectors of the economy such as agriculture,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February business confidence index, sank to 50.6 from January’s 56.6.

“This month we asked supply managers how the upcoming sequestration would affect their company’s sales. More than one-third, or 35.1 percent, expect the cut in federal spending to result in a reduction in unit sales for their company. It is clear that this had a negative impact on supply manager’s economic outlook this month,” said Goss.

As reported by one supply manager, “Sequestration is a big question mark for us since we do a lot with first tier suppliers to the government.”

Inventories: Regional inventory levels increased for the month but at slower pace compared to January. The February inventory index declined to 52.2 from January’s 55.0.

“Companies in our survey have now expanded inventory levels for three straight months. This inventory accumulation will add slightly to regional growth in the months ahead,” said Goss.

Companies in the region continue to expand “sustainable” procurement policies. This month, almost half, or 47.6 percent, of firms indicated that they had expanded sustainable purchases of raw materials and supplies. On the other hand, 45.2 percent reported no change and 7.2 reported a reduction in sustainable buying.

Trade: New export orders remain weak for the region. The new export orders index increased to a frail 49.2 from January’s 45.3. On the other hand, imports advanced to 53.7 from 50.7 for January. “As our overall regional gauge moved above growth neutral for February, so did purchasing from abroad. On the other hand, economic weakness among the region’s important trading partners weighed on exports,” said Goss.

Other components: Other components of the February Business Conditions Index were new orders at 55.0, up from 52.3 in January; production or sales at 55.5, up from 53.9; and delivery lead time at 51.1, down from 56.1 in January.

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 February overall index for Arkansas dipped to 51.1 from 52.3 in January. Components of the index from the February survey of supply managers were new orders at 44.5, production or sales at 49.0, delivery lead time at 62.5, inventories at 50.0, and employment at 49.4. “Over the past year, the state’s unemployment rate has declined by seven tenths of one percentage point. However, a large part of this decline was the result of approximately 23,000 workers leaving the work force. Our surveys point to a continuation of this weak hiring market, especially for smaller manufacturers as they struggle with impending mandates from healthcare reform,” said Goss.

Iowa: For a second straight month, Iowa’s Business Conditions Index increased. The overall index from a survey of supply managers in the state climbed to 64.6, a regional high, from 59.8 in January. Iowa’s leading economic indicator has now moved above growth neutral for 38 straight months. Components of the index for February were new orders at 70.7, production or sales at 71.1, delivery lead time at 58.4, employment at 62.5, and inventories at 60.3. “For the first time since the economic recovery began in 2009, Iowa’s unemployment rate has moved below 5 percent. Businesses in the state tied to energy and agriculture continue to experience healthy growth. Our surveys indicate that economic growth for Iowa will remain healthy for the next three to six months,” said Goss.

Kansas: The Kansas Business Conditions Index for February expanded to 54.1 from January’s 48.3. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 57.2, production or sales at 56.2, delivery lead time at 50.5, employment at 49.7, and inventories at 56.7. “The state’s unemployment rate has declined by a full percentage point over the past year. However during this same period of time, Kansas has lost more than 7,000 jobs and approximately 22,000 workers left the state’s labor market. Our surveys over the past several months point to sluggish, but positive business and job growth for the next three to six months,” said Goss.

Minnesota: For a third straight month, Minnesota’s Business Conditions Index moved above growth neutral. The index from a monthly survey of supply managers in the state declined to 52.0 from 52.6 in January. Components of the index from the February survey were new orders at 44.8, production or sales at 50.5, delivery lead time at 56.2, inventories at 52.7, and employment at 51.7. “Over the past year, Minnesota’s unemployment rate has declined by approximately one-half of one percentage point. However, job growth has been sluggish over this same period of time. Our surveys over the past several months point to a continuation of this trend with very slow job growth. Minnesota firms depending heavily on exports have been negatively affected by slowing global economic pullbacks. On the positive side, firms linked to agriculture continue to experience healthy growth,” said Goss.

Missouri: The February Business Conditions Index for Missouri advanced to 52.1 from January’s 51.2. Components of the survey of supply managers in the state were new orders at 51.8, production or sales at 50.9, delivery lead time at 53.8, inventories at 47.1, and employment at 57.0. “Missouri’s unemployment rate continues to move lower with the current jobless rate down a full three percentage points since the national economic recovery began in 2009. Heavy or durable goods manufacturers in the state, such as metal producers, continue to experience healthy growth while nondurable goods producers are encountering downturns in economic activity. Over the next three to six months, Missouri’s economic growth will slow but remain positive according to our surveys,” said Goss.

Nebraska: For the second time in the past three months, Nebraska’s leading economic indicator sank below growth neutral. The Business Conditions Index, from a survey of supply managers, tumbled to 48.7 from January’s 50.5, but was up slightly from December’s 48.4. Components of the index for February were new orders at 50.2, production or sales at 47.5, delivery lead time at 48.8, inventories at 52.8, and employment at 44.3. “Contrary to other states in the region, Nebraska’s unemployment rate has declined and the labor force has expanded since the national expansion began in 2009. However according to our surveys over the past several months this very positive trajectory is now ending with slow to no growth projected for the next three to six months,” said Goss.

North Dakota: For a third straight month, North Dakota’s leading economic indicator is pointing to softer but still positive economic growth in the next three to six months. The index expanded to 54.4 from January’s 53.8. Components of the overall index for February were new orders at 62.1, production or sales at 69.5, delivery lead time at 50.4, employment at 52.8, and inventories at 37.1. “As a result of very strong economic growth, North Dakota’s labor force participation rate, the share of the population that is working or looking for work, is the highest in the nation and its unemployment rate is the lowest in the nation. Thus, companies in the state are having increasing difficulty recruiting additional workers even as their new orders continue to expand at a very healthy pace. As a result, labor shortages are the chief inhibitor to more robust growth in North Dakota in the months ahead,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma moved above growth neutral for February. The leading economic indicator from a monthly survey of supply managers dipped to 52.5 from 53.8 in January. Components of the February survey of supply managers in the state were new orders at 51.7, production or sales at 48.4, delivery lead time at 49.0, inventories at 62.4, and employment at 51.0. “Since the recovery began in 2009 and contrary to the nation, Oklahoma’s unemployment rate has declined by two percentage points and the state’s labor force has expanded by almost 40,000 workers. Durable goods manufacturers such as metal product producers are reporting very healthy growth while nondurable manufacturers including food processors are detailing pullbacks in economic activity. Based on our survey results over the past several months, Oklahoma growth will continue on a positive, but slower pace,” said Goss.

South Dakota: For a third straight month, South Dakota’s leading economic indicator from a survey of supply managers rose above the 50.0 threshold to 52.5 from January’s 53.5 and December’s 51.9. Components of the index for February were new orders at 47.9, production or sales at 55.2, delivery lead time at 49.1, inventories at 52.4, and employment at 49.2. “Since the recession ended in 2009, South Dakota’s unemployment rate has declined by almost one percentage point. Manufacturing growth has been an important factor contributing to the lower jobless rate. Recent surveys indicate that overall and manufacturing growth will continue to be positive but slower,” said Goss.

Survey results for March will be released on the month’s first business day, April 1.

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