The February Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, rose for a third straight month pointing to improving economic growth in the months ahead. The index expanded to 61.0 from 54.7 in January and 50.3 in December. An index of 50.0 is considered growth neutral for the leading economic indicator.
“Readings over the past several months indicate that the regional economic rebound that is underway will pick up steam in the months ahead. Even so, I am concerned that the economic problems in Europe, which are pushing the value of the dollar higher, will negatively influence regional growth. This part of the nation depends heavily on agriculture, which likewise suffers from a “too strong” dollar. However, the likelihood of the regional economy dipping back into recessionary territory has diminished significantly according to our surveys of supply managers. While I expect the overall regional economy to expand in the months ahead, I continue to expect job growth to be subdued, especially for rural areas of the nine-state region,” Creighton University Economics Professor Ernie Goss said today.
For a second straight month, the regional employment index rose above growth neutral. The February job reading of 56.1 was up from December’s 51.7. For February, 23 percent of supply managers reported job gains for their firms while only 11 percent indicated that their firms reduced employment. “This is the first time that we have recorded two straight months of employment indices above growth neutral since July 2007. Despite this upturn, the regional labor market remains fragile with any upturn in hiring susceptible to national and global economic slumps,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Rebounding prices have accompanied job losses for the region. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a ninth straight month to 78.3 from January’s 75.5 and December’s 65.2. “The prices-paid index has more than doubled over the past year. This month we asked supply managers how much they expect prices for products they purchase to change by in the next six months. Almost three of ten, or 29 percent, expect prices to expand by more than five percent in the next six months. Despite deflation warnings from some economists and policymakers, only 1 percent of supply mangers expect a cut in prices in the next six months,” said Goss.
“Recently the Federal Reserve took the timid step of increasing the almost inconsequential discount rate by a quarter of one percent. Based on responses from supply mangers in our survey and my own analysis, I expect the Fed to raise the more important funds rate by a quarter percent before the end of the second quarter of this year. Inflation in the pipeline is well above the Fed’s soft target of 2.0 percent in my judgment,” said Goss.
Looking ahead six months, economic optimism, captured by the February confidence index, climbed to a strong 73.0 from January’s 68.5 and December’s 69.5. “Record low interest rates, a stabilizing job market and the January improvement in the nation’s unemployment rate buoyed the economic optimism of supply managers in the Mid-America region,” said Goss.
An improving global economy continues to push exports higher. New export orders slipped to a still healthy 55.4 from 55.8 in January. The improving regional economy likewise rocketed imports to a higher 58.8 from January’s 50.0. “Since I expect exports to be an important ingredient of the regional economic recovery, recent increases in the value of the dollar, making U.S. goods less competitive abroad, are a concern for me. This month, we asked supply mangers to compare their international buying this year compared to last year. More than 35 percent indicated that buying abroad had expanded. Only 9.2 percent reported that international buying had declined from last year,” said Goss.
For the first time since September 2008, supply managers in the nine-state region increased their inventory levels. The February inventory index rose to 57.4 from January’s 48.3 and December’s 39.2. “After 16 straight months of inventory reductions, supply managers expanded their inventory levels at the fastest pace since August 2006. This restocking will positively affect growth in the months ahead,” said Goss.
Other components of the February Business Conditions Index were new orders at 66.1, up from January’s 57.4; production or sales at 67.3, up from 57.9; and delivery lead time unchanged from January’s 58.4.
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.
Nebraska: For a sixth consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, expanded above growth neutral. The February reading, based on a survey of supply managers, climbed to 58.8 from 54.2 in January. Components of the overall index for February were new orders at 62.8, production, or sales, at 60.0, delivery lead time at 60.4, inventories at 48.6, and employment at 61.1. “Over the past year, Nebraska has lost more than 8,000 manufacturing jobs, or almost 9 percent of its manufacturing job base. Almost 63.0 percent of the producer job losses were among durable goods manufacturers. For the second quarter of 2010 based on our surveys, I expect minimal manufacturing job gains and very modest overall job gains for the state,” said Goss.
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Omaha, Neb. —
