December survey results at a glance:
- Leading economic indicator points to healthy growth for the first half of 2011.
- New hiring still tepid with less than one-fourth of firms expecting an upturn in hiring in next 6 months.
- Inflationary pressures remain high.
- Rapid inventory buildup reflects an improving economic outlook.
Mid-America Leading Economic Indicator Rises for December:
Healthy Growth with Higher Prices Expected for 2011
For a second month, the Business Conditions Index for the nine-state Mid-America region advanced. According to recent surveys of supply managers, the region will likely continue to grow at a healthy pace with rising inflationary pressures at the wholesale level in the first half of 2011.
Overall index: The index, a leading economic indicator which ranges between 0 and 100, expanded to 57.5 from November’s 55.9 and was well above October’s 52.3. This is the 13th consecutive month that the index has risen above growth neutral. An index of 50.0 is considered growth neutral. Very healthy farm income and expanding trade are pushing growth higher for firms in the region. The overall index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time.
“The regional economy ended the year on a high note as the weaker U.S. dollar and an expanding global economy stimulated business activity for firms with close ties to agriculture and energy commodities,” Creighton University Economics Professor Ernie Goss said today.
Employment: For a 12th straight month, the regional employment index remained above growth neutral. However, the December job reading slumped to a frail 51.1 from November’s 53.0. For December, 21.1 percent of firms reported increases in hiring while 18.9 percent detailed pullbacks in company employment levels.
This month firms were asked about their hiring expectations for the next six months. “Only 24 percent expect an upturn in hiring while the remaining 76 percent anticipate layoffs or level employment for the first half of 2011’, said Goss. “These expectations are somewhat less optimistic compared to March 2010 when 28 percent anticipated greater new hiring in the next six months.”
“Despite this somewhat negative employment outlook, I expect the nine-state region to add almost 100,000 jobs for the first half of 2011, or a 1.2 percent annualized pace. This pace is a half percentage point above what I expect for the national economy,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, soared to an inflationary 81.1 from 64.7 in November and 69.9 in October. This was the 19th straight month that the region’s inflation gauge climbed above growth neutral. “While rapid growth in the supply managers’ inflation gauge has yet to show up in consumer prices, I forecast that to change significantly in 2011. This increase at the producer level will bolster consumer prices well above the Federal Reserve’s target rate of 2.0 percent sometime in 2011. Likewise, I expect long term interest rate to grow rapidly in the first half of 2011 to compensate investors for rising inflation,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, rose to 69.9 from November’s 67.8 and well up from September’s 51.6. “While the overall U.S. economy remains weak, as gauged by unemployment rates, individual firms in the Mid-America region are experiencing solid improvements in business conditions. This is translating into a strong economic outlook in terms of sales but without accompanying rapid job creation,” said Goss.
Inventories: For the 10th time in the past 11 months, supply managers in the nine-state region expanded inventory levels. The December inventory index climbed to 64.4 from November’s 59.7. “This time last year, supply managers were cutting inventories and the December 2009 inventory index was 39.2, well below the current level. A stronger sales outlook is pushing supply managers to add to inventories,” said Goss.
Trade: The December new export orders index advanced to 54.1 from 50.8 in November. The region’s import reading slipped from November’s 51.4 to 50.0 for December. “The weaker U.S. dollar, making U.S. goods cheaper abroad and foreign goods more expensive in the U.S., is strengthening exports and shrinking imports. I expect this trend to continue for 2011 with the global economic rebound adding to the influence of the weaker dollar,” said Goss.
Other components: Other components of the December Business Conditions Index were new orders at 58.2, up from November’s 54.5; production or sales at 55.8, down from 56.8; and delivery lead time at 57.9, up from 55.6 in November.
The 2010 Regional Economy: Job leaders (states exceeding nation in job growth) –Minnesota (2 percent growth), North Dakota (2 percent growth), South Dakota (1.7 percent growth), Arkansas, Iowa, and Oklahoma (1.5 percent growth), Nebraska (1.1 percent growth). Job laggards- (states lagging behind national average in job growth) – Kansas (0.6 percent growth), Missouri (0.5 percent loss).
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 leading economic indicator for Arkansas, declined to a still healthy level for the month. After two straight months of increases, the Arkansas Business Conditions Index dipped to 57.2 for December from November’s 61.9. Components of the overall index for December were new orders at 58.8, production or sales at 66.7, delivery lead time at 52.1, inventories at 41.5 and employment at 52.8. “In 2010, Arkansas recovered a large share of durable goods manufacturing jobs it lost from the recession. Based on our survey results, the state will continue to expand its manufacturing base, especially in durable goods for the first half of 2011. This growth will spill over into the state’s new hiring with more than 8,000 jobs added (1.2 percent annualized growth) in the first half of 2011,” said Goss.
Iowa: For the 12th straight month, Iowa’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator from a survey of supply managers, climbed to 56.8 from November’s 54.7. Components of the overall index for December were new orders at 62.6, production or sales at 54.7, delivery lead time at 62.9, employment at 57.1, and inventories at 46.6. “In 2010, Iowa recovered a large share of durable goods manufacturing jobs it lost from the recession. On the other hand, Iowa continued to shed nondurable goods manufacturing jobs, especially food processing. Based on our survey results, the state will expand its manufacturing base, especially in durable goods for the first half of 2011. This growth will spill over into the Iowa’s new hiring with more than 5,000 jobs added (0.6 percent annualized growth) in the first half of 2011,” said Goss.
Kansas: For the first time since July, the leading economic indicator for Kansas sank below growth neutral. The December Business Conditions Index slumped to 48.4 from November’s 50.8. Components of the overall index for December were new orders at 54.3, production or sales at 48,8, delivery lead time at 52.1, employment at 42.9, and inventories at 44.5. “In 2010, Kansas failed to recover manufacturing jobs lost from the recession. Based on our survey results, the state’s job growth will be nil for the first half of 2011. However a significant weakening in the value of the dollar, making Kansas exported goods more competitive abroad, would be an important stimulate to job growth,” said Goss.
Minnesota: For the 17th straight month Minnesota’s leading economic indicator was above growth neutral. However, the Business Conditions Index for December sank to 52.0 from November’s 56.2. Components of the overall index for December were new orders at 52.0, production or sales at 53.8, delivery lead time at 50.9, inventories at 55.7 and employment at 47.7. “In 2010, Minnesota gained both durable and nondurable manufacturing jobs. However even with healthy economic growth for 2011, the state will not recover the manufacturing jobs lost since the recession began. Based on our survey results over the past several months, I expect Minnesota to add almost 23,000 total jobs (an annualized growth of 1.5 percent) in the first half of 2011,” said Goss.
Missouri: For the 18th straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index, based on a survey of supply managers, grew to 57.4 from 56.6 in November. Components of the overall index from the December survey were new orders at 55.6, production or sales at 58.0, delivery lead time at 61.4, inventories at 58.7 and employment at 53.2. “Missouri continued to lose manufacturing jobs in 2010, albeit at a slow pace. Transportation equipment manufacturing and firms tied to this industry continue to expand output without increasing employment. Based on our survey results over the past several months, I expect job growth to be very modest for the first half of 2011 with gains of less than one-half of one percent (annualized),” said Goss.
Nebraska: Nebraska’s Business Conditions Index, a leading economic indicator, climbed above growth neutral 50.0 for a second straight month. The index from a survey of supply managers rose to 56.4 from November’s 52.1. Components of the overall index for December were new orders at 58.5, production or sales at 60.6, delivery lead time at 57.3, inventories at 53.5 and employment at 55.2. “Manufacturing employment for Nebraska was essentially flat for 2010. As long as the U.S. dollar does not rise significantly over the coming months, I expect Nebraska to add both durable and nondurable goods jobs in the first half of 2011. Overall, the state economy will add approximately 6,000 jobs (an annualized pace of 1.1 percent) in the first half of 2011,” said Goss.
North Dakota: The leading economic indicator for North Dakota remained above growth neutral. However, the overall Business Conditions Index, based on a survey of supply managers, dipped to a regional low of 51.3 from November’s 52.2. Components of the overall index for December were new orders at 42.6, production or sales at 29.3, delivery lead time at 61.6, employment at 54.5, and inventories at 68.6. “Vibrant energy and agriculture sectors boosted 2010 growth for the state. Even so, manufacturing employment in North Dakota was flat for the year. Based on surveys over the past several months, I expect robust job growth for the state for the first half of 2011 with an addition of more than 4,000 jobs (2.0 percent annualized growth),” said Goss.
Oklahoma: For the 12th straight month, Oklahoma’s leading economic indicator remained above growth neutral. While the Business Conditions Index was down at 59.7 from November’s 66.3, it was the highest reading for the region. Components of December’s overall reading were new orders at 58.3, production or sales at 54.0, delivery lead time at 57.5, inventories at 76.4 and employment at 52.0. “Oklahoma experienced very healthy 2010 growth. The state will continue to benefit from expansions tied to the energy sector. Surveys over the past several months point to the addition of more than 20,000 jobs (a 2.3 percent annualized growth) for the first half of 2011,” stated Goss.
South Dakota: South Dakota’s leading economic indicator continues to point to an expanding state economy in the months ahead. The overall Business Conditions Index declined slightly to 57.2 from November’s 57.8. Components of the overall index for December were new orders at 59.8, production or sales at 62.0, delivery lead time at 41.3, inventories at 63.7 and employment at 59.4. “Manufacturers increased employment and the average hours worked in 2010. Likewise growth tied to a very healthy farm sector boosted 2010 growth. Based on surveys over the past several months, I expect this growth to extend well into 2011 with the addition of almost 5,000 jobs (a 2.0 percent annualized pace) for the first half of the year,” said Goss.
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