Middle America Business Conditions Index for September (Text)

Following is the text from the Mid- America Business Conditions Survey of supply managers and business leaders in the region from Creighton University.

September survey results at a glance:

After three straight months of declines regional leading economic indicator up slightly

Employment gauge falls below growth neutral for second straight month

Business confidence tumbles to lowest level since February 2009

Approximately 29 percent of firms anticipate layoffs in the next six months, up sharply from December 2010.

For only the second time in the past six months, the Business Conditions Index for the nine-state Mid-America region increased. The index, a leading economic indicator from a monthly survey of supply managers, continues to point to positive, but anemic growth for the region for the next three to six months.

Overall index:

The index, which ranges between 0 and 100, rose slightly for September to 52.2 from 52.0 in August. While this is the 22nd consecutive month that the index has been above growth neutral 50.0, industries and firms in the region linked to the domestic economy are experiencing pullbacks in overall economic activity. On the other hand, growth among firms tied to agriculture and international markets has more than offset this weakness. “Putting it together, I expect the region to continue to expand at an anemic pace with little potential for a recession in this region for the near term,” said Ernie Goss, head of Creighton University’s Economic Forecasting Group.

The overall index, or 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.

Employment:

For a second straight month, the employment index moved below growth neutral. The September reading was up but still frail at 49.6 from September’s 49.0. “Almost 22 percent of survey companies reported net job reductions for September. This month we asked survey participants about employment prospects for their firm. Approximately 29 percent expect layoffs for their firm in the next six months. This is much higher than the 7 percent that reported likely layoffs in December 2010. Clearly the job outlook has deteriorated even in this part of the country,” 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, dipped to 66.3 from September’s inflationary 71.0. “As regional growth has waned, so have inflationary pressures at the wholesale level. Asked about future price increases, supply managers anticipate input prices growing at an annualized 4.5 percent pace in the next six months. With the current Federal Reserve policy remaining very stimulative, I expect inflation to climb significantly above the Fed’s target,” said Goss.

As one supply manager reported, “It is good to see commodity prices coming down, but unfortunately the bad news is the economy appears to be moving in the same direction.”

Confidence:

Looking ahead six months, economic optimism, as captured by the September business confidence index, plummeted to 40.5, the lowest reading since February 2009 and down from 43.4 in August. “It is clear that the economic uncertainty engulfing Europe and the U.S. have dampened the economic outlook of supply managers in the region. Even though the regional economy continues to grow, albeit at a weak pace, supply managers remain concerned about the likely impact of a U.S. recession,” said Goss.

Inventories:

Since January 2010, supply managers in the nine-state region have increased inventory levels 19 out of 21 months. “This has been an important source of regional growth. Unfortunately, September’s upturn to 55.0 from August’s 50.5 is likely unintended and due to pullbacks in sales and production,” said Goss.

Trade:

Despite a stronger U.S. dollar making imported goods cheaper, firms reduced imports with a September index of 45.5, down from August’s 46.6. The stronger dollar, making U.S. goods less price competitive, and economic weakness among trading partners pushed new export orders to 48.8, down slightly from 54.8. Given the importance of exports to regional growth, the September pullback is a real concern,” said Goss.

Other components:

Other components of the September Business Conditions Index were new orders at 49.6, down from 51.2 in August; production or sales at 50.4, down from 54.2; and delivery lead time at 56.4, up from 55.0 in August.

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.

SOURCE: Mid-America Business Conditions Survey, http:/www.outlook-economic.com

To contact the reporter on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net

To contact the editor responsible for this story: Marco Babic at mbabic@bloomberg.net

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