Omaha, NE – The Business Conditions Index for the Mid-America region climbed for the fifth straight month, pointing to a growing economy in the months ahead, according to the April Business Conditions survey of supply managers and business leaders in a nine-state region.
The index, a leading economic indicator, slipped to a very healthy 61.7 from March's 64.3. An index of 50.0 is considered growth neutral. This was the fifth straight month that the index has risen above growth neutral signaling an expanding regional economy in the months ahead.
"While the financial turmoil in Europe is a clear risk to the recovery, manufacturing and value-added services sectors in the Mid-America region are experiencing very strong business activity. This leading economic activity will continue to push overall economic growth for the nine-state region higher through the third quarter of 2010. Government data shows that the region added 25,000 jobs for the first quarter of 2010. I expect job additions for the second quarter of 2010 to be somewhat stronger than the first quarter's annualized 0.8 percent," Creighton University Economics Professor Ernie Goss said today.
For the fourth straight month, the regional employment index rose above growth neutral. The April job reading climbed to 58.4 from March's 57.9. For April, 28.4 percent of supply managers reported job gains for their firms, while only 11.6 percent indicated that their firms reduced employment from March 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," 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 the 11th straight month to 81.2 from 80.5 in March. "The prices-paid index has more than doubled over the past year, signaling rising price pressures at the producer level. While we have yet to experience rising inflationary pressures at the consumer level, record-low interest rates from the Federal Reserve, combined with record federal government spending 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.
This month supply managers were asked how much they expected prices of goods and services they buy to change in the next six months. Almost one-third, or 32 percent, anticipates price increases of more than 6 percent in the next six months. The Federal Reserve cannot continue to ignore this upward pressure on prices at the producer level. Recent Presidential appointments to the Federal Reserve Board are on the side of keeping rates low. Thus, while I think the Fed should raise rates soon, I do not expect a rate hike before the fourth quarter of this year," said Goss.
Looking ahead six months, economic optimism, captured by the April confidence index, rose to a very strong 72.9 from March's 70.1. "Even though employers face too much uncertainty to more aggressively hire, record low interest rates, a stabilizing job market and recent declines in the nation's unemployment rate are supporting economic optimism of supply managers in the Mid-America region," said Goss.
New export orders slipped to a still healthy 57.0 from March's 61.6. The improving regional economy has also contributed to strong imports with an April index of 59.8, up from March's 57.0. "Even as the Euro has weakened against the dollar, the dollar has depreciated in value by 7 percent against the currency of all trading partners over the past year. This decline in value is making both manufactured and agricultural goods from the U.S. more competitive abroad. For the last three months, one-third of the supply managers reported an upturn in international buying. Only 2 percent of the supply managers reported a cut in buying from abroad over this same time period," said Goss.
For the third consecutive month, supply managers in the nine-state region increased their inventory levels. The April inventory index slipped to a still solid 53.2 from March's 57.5. "After an extended period of inventory reductions for firms in the region, businesses are beginning to add to inventory levels. This growth has been a positive factor pushing the regional economy forward," said Goss.
Other components of the April Business Conditions Index were new orders at 70.0, down from March's 72.1; production or sales at 65.8, down from 72.2; and delivery lead time at 61.4, down from 61.8.
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.
Oklahoma: For a fourth straight month, Oklahoma's leading economic indicator from a monthly survey of supply managers was above growth neutral. The Business Conditions Index dipped to a still strong 59.7 from March's 66.5. Components of April's overall reading were new orders at 58.7, production, or sales, at 61.7, delivery lead time at 73.6, inventories at 41.7, and employment at 62.7. "In the first quarter of 2010, Oklahoma's unemployment rate declined slightly as the state lost more than 2,000 jobs. For the second quarter, based on surveys over the past several months, I expect Oklahoma's unemployment rate to remain flat as the state adds more than 10,000 jobs. The state's nondurable goods manufacturers will be the job leader in the state," said Goss.