The May Business Conditions Index for the Mid-America region advanced for a sixth straight month, pointing to a growing economy in the months ahead, according to the May Business Conditions survey of supply managers in the nine-state region.
The index expanded to 64.2 from April’s very healthy 61.7. An index of 50.0 is considered growth neutral for the leading economic indicator. This was the sixth straight month that the index has risen above growth neutral, signaling a healthy economic recovery for the regional economy in the months ahead.
“The financial turmoil in Europe is a threat to the economic expansion underway. It has increased the value of the dollar, which has made U.S. manufactured goods and farm products less competitive abroad. The flight to the safety of U.S. Treasury bonds, if sustained, will have significant and negative impacts on agriculture income and on economic prospects for industries with linkages to agriculture. This month we asked supply managers how the European economic problems are affecting their firms. Almost 21 percent of respondents reported negative impacts for their firm from Europe’s turmoil. The remaining 79 percent indicated little or no impacts to date. In my judgment, more negative impacts will surface if the dollar continues to appreciate against the Euro,” Creighton University Economics Professor Ernie Goss said today.
For a fifth straight month, the regional employment index rose above growth neutral. The May job reading climbed to 60.1 from April’s 58.4 and March’s 57.9. This was the highest employment reading recorded in almost four years. For May, 36.7 percent of supply managers reported job gains for their firms, while only 16.5 percent indicated that their firms reduced employment from April levels.
“Despite improved hiring, I expect unemployment rates for most states in the region to remain at elevated levels as firms remain overly cautious about hiring new workers. There is just too much economic uncertainty right now for firms to hire more aggressively. It is going to take many months before most states in the region recover jobs lost since the recession,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Rebounding prices have accompanied the regional economic expansion. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a 12th straight month to 80.4, but was down slightly from 81.2 in April.
“Even as government measures of inflation continue to indicate little inflationary pressures at retail and wholesale levels, supply managers in our survey report significant price bubbles for commodity prices. Record-low interest rates from the Federal Reserve, combined with record federal government deficit spending, are creating price bubbles in various commodities and will ultimately contribute to inflationary pressures at the consumer level – above the Fed’s goal of 1.75 percent to 2 percent. Even though I think the Fed should begin raising rates at its June meetings, I see no rate change before the fourth quarter of 2010,” said Goss.
This month supply managers were asked how a federal cap- and- trade law would affect the prices of products they purchase. Over 72 percent of the purchasers expect any new law to increase prices with the remaining 28 percent anticipating little or no impact on prices.
Looking ahead six months, economic optimism, captured by the May confidence index, dipped to a still strong 69.0 from April’s 72.9. “The economic turmoil in Europe has failed to deter the outlook for the economy six months down the road,” said Goss.
Despite a stronger dollar, an improving global economy continues to push exports higher. The May new export orders advanced to 59.0 from 57.0 in April. The improving regional economy has also contributed to strong imports with a May reading of 63.2, highest index in four years, and up from April’s index of 59.8.
For a fourth consecutive month, supply managers in the nine-state region increased inventory levels. The May inventory index expanded to 54.6 from April’s 53.2. “Renewed economic confidence among supply managers has been showing up in our inventory readings. Firms in the region with expectations of higher orders and sales are adding to their inventories of raw materials and supplies,” said Goss.
Other components of the May Business Conditions Index were new orders at 72.4, up from April’s 70.0; production or sales at 72.2, up from 65.8; and delivery lead time at 62.1, up from 61.4.
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.
Arkansas: Arkansas’ leading economic indicator based on a survey of supply managers in the state continues to point to growth in the months ahead. The Arkansas Business Conditions Index for May slipped to a still healthy 56.8 from 58.7 in April. Components of the overall index for May were new orders at 57.9, production or sales at 63.4, delivery lead time at 64.2, inventories at 50.3, and employment at 48.4. “Since the beginning of the recession, Arkansas has lost almost 50,000 jobs. Based on the latest state job data, I not expect the state to fully restore these jobs until September 2012,” said Goss.
Iowa: For the fifth straight month, Iowa’s Business Conditions Index climbed above growth neutral. The index, a leading economic indicator from a survey of supply managers, slipped to a to regional high 70.3 from 70.5 in April. Components of the overall index for May were new orders at 81.1, production or sales at 81.0, delivery lead time at 68.3, employment at 67.4, and inventories at 53.6. “Iowa’s economy has begun adding jobs. Since the beginning of the recession, Iowa has lost more than 51,000 jobs. Based on the latest state job data and Iowa’s recovery from the 2001 recession, I do not expect Iowa to fully restore these lost jobs until September 2012,” said Goss.
Kansas: The leading economic indicator for Kansas from a survey of supply managers advanced for a seventh consecutive month. The May Business Conditions Index increased slightly to 62.3 from 62.1 in April. Components of the overall index for May were new orders at 67.7, production, or sales, at 63.0, delivery lead time at 69.4, employment at 54.3, and inventories at 57.1. “Kansas’s economy has begun adding jobs. Since the beginning of the recession, Kansas has lost more than 52,000 jobs. Based on the latest Kansas job data and the state’s recovery from the 2001 recession, I not expect Kansas to fully restore these jobs until September 2012,” said Goss.
Minnesota: Minnesota’s leading economic indicator, based on a survey of supply managers, continues to point to advancing economic conditions ahead. The Business Conditions Index rose to 64.1 from April’s robust 62.4. This was the tenth straight month that Minnesota's index has risen above growth neutral. Components of the overall index for May were new orders at 70.6, production, or sales, at 69.3, delivery lead time at 63.4, inventories at 53.8, and employment at 63.1. “Minnesota’s economy has begun adding jobs. Since the beginning of the recession, Minnesota has lost more than 125,000 jobs. Based on the latest state job data and Minnesota’s recovery from the 2001 recession, I not expect the state to fully restore these jobs until September 2013,” said Goss.
Missouri: For an 11th straight month, Missouri’s Business Conditions Index climbed above growth neutral. The index from a survey of supply managers increased to 59.9 from 58.4 in April. Components of the overall index from the May survey were new orders at 64.1, production, or sales, at 65.8, delivery lead time at 57.9, inventories at 59.0, and employment at 52.5. “Missouri’s economy has begun adding jobs. Since the beginning of the recession, Missouri has lost almost 127,000 jobs. Based on the latest state job data and Missouri’s recovery from the 2001 recession, I not expect the state to fully restore these jobs until October 2013,” said Goss.
Nebraska: For a ninth consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, expanded above growth neutral. The May reading from a survey of supply managers in the state expanded to 64.1 from April’s 62.8. Components of the overall index for May were new orders at 78.2, production, or sales, at 74.7, delivery lead time at 57.8, inventories at 50.6, and employment at 59.2. “Nebraska’s economy has begun adding jobs. Since the beginning of the recession, Nebraska has lost more than 21,000 jobs. Based on the latest state job data and Nebraska’s recovery from the 2001 recession, I not expect the state to fully restore these jobs until March 2012,” said Goss.
North Dakota: North Dakota’s leading economic indicator once again moved above growth neutral. The index, based on a survey of supply managers in the state, bounced to 59.2 from April’s 52.6. Components of the overall index for May were new orders at 57.8, production, or sales, at 63.8, delivery lead time at 58.8, employment at 68.6, and inventories at 47.3. “North Dakota’s economy, much like the other states in the region, is currently adding jobs. North Dakota is the only state in the region that actually gained jobs with an addition of almost 8,000 jobs since the national recession began. I expect the state to continue to add jobs, especially among firms with ties to energy and natural resources,” said Goss.
Oklahoma: For a fifth straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers climbed above growth neutral. The Business Conditions Index climbed to 59.8 from April’s strong 59.7. Components of May’s overall reading were new orders at 66.9, production, or sales, at 55.8, delivery lead time at 86.8, inventories at 45.9, and employment at 43.9. “Oklahoma’s economy has begun adding jobs. Since the beginning of the recession, Oklahoma has lost more than 52,000 jobs. Based on the latest state job data and Oklahoma’s recovery from the 2001 recession, I do not expect the state to fully restore these jobs until October 2011,” said Goss.
South Dakota: South Dakota’s leading economic indicator continues to point to healthy growth in the months ahead. The index, based on a survey of supply mangers in the state, expanded to 67.1 from 66.2 in April. Components of the overall index for May were new orders at 73.3, production, or sales, at 69.4, delivery lead time at 55.9, inventories at 66.9, and employment at 70.0. “South Dakota’s economy has begun adding jobs. Since the beginning of the recession, South Dakota has lost more than 6,000 jobs. Based on the latest state job data and South Dakota’s recovery from the 2001 recession, I not expect the state to fully restore these jobs until February 2011,” said Goss.