Following is the text from the Mid-America Business Conditions Survey of supply managers and business leaders in the region from Creighton University.
Exports leading the way to improving growth Inflation gauge climbs above 80.0 for the seventh time in the past year Leading economic indicator points to healthy growth for next six months Business confidence remains high despite economic and political turmoil Almost 16 percent of firms expect significant supply disruptions resulting from the earthquake and tsunami in Japan.
For the first time since October of last year, the Business Conditions Index, a leading economic indicator for the nine-state Mid-America region, declined but remained in a range pointing to healthy economic growth for next three to six months. However, as in prior months, the March survey indicates rising inflationary pressures at the wholesale level.
The index, a leading economic indicator that ranges between 0 and 100, slipped to 61.4 from 63.2 in February. This is the 16th consecutive month that the index has been above growth neutral. An index of 50.0 is considered growth neutral. 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
“Very healthy growth stemming from the export of agricultural and manufacturing goods continues to be an important source of growth in the region,” Creighton University Economics Professor Ernie Goss said today.
For a 15th straight month, the regional employment index remained above growth neutral. The March job reading advanced to a very healthy 60.3 from February’s 58.3. “This month, only 10.7 percent of firms reported reductions in employment. This compares to 31.3 percent reporting expansions in employment for the month. As in past months, firms in nonurban areas are reporting much stronger hiring than their counterparts in urban areas of the region,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
“From the beginning of the recession in December 2007 until March of last year the region lost more than 553,000 jobs. Over the past year, the region has recovered approximately 14 percent of those jobs. Our surveys over the past several months indicate that the region will add another 100,000 by the end of 2011 leaving the region down 379,000 jobs, or 3.0 percent, since beginning of the recession,” said Goss.
The prices-paid index, which tracks the cost of raw materials and supplies, dipped to a still inflationary 88.0 from 89.2 in February. “Since the national recession ended in June 2009, we have tracked what I consider to be highly inflationary increases in our price gauge,” said Goss.
“We continue to record unacceptably high inflationary pressures at the wholesale level. The upward pressures in prices will be further exacerbated by disruptions of supplies and products from Japan, said Goss. “Additionally, the Federal Reserve’s record low short-term interest rate policy and the Fed’s policy of buying long-term U.S. Treasury debt, quantitative easing 2 (QE2), will continue to contribute to higher inflationary pressures. Over the past three months, U.S. wholesale prices have advanced at an annualized pace of more than 15 percent. Surveys of supply managers, both in our region and nationally, indicate that this elevated pace will continue at least through the summer of this year.
Looking ahead six months, economic optimism, as captured by the March business confidence index, dipped to a still strong 65.8 from 71.0 in February. “Despite higher commodity prices, unacceptably elevated unemployment rates, and Japanese supply disruptions, supply managers remain upbeat in their economic outlook,” said Goss.
Inventories: For the 13th time in the past 14 months, supply managers in the nine-state region expanded inventory levels. The March inventory index slipped to 60.9 from 61.9 in February. “The extended buildup in inventories of raw materials and supplies is another indication of the degree of economic optimism among supply managers as they expect growing sales to reduce supply inventories in the months ahead,” said Goss.
This month supply managers were asked how they expected the Japanese tragedy to affect their purchases of supplies and inputs. Approximately two-thirds of respondents expected little or no impact on the price of purchases while only 4 percent anticipated price increases of more than 10 percent resulting from the earthquake and tsunami. In terms of deliveries, approximately 15.6 percent expect significant delays in obtaining supplies while 55.8 percent anticipate little or no impact on delivery speed stemming from the Japanese disaster. The remaining supply managers anticipate minor delays.
An expanding global economy continues to boost regional trade numbers. Aided by a cheap dollar making U.S. goods more competitively priced abroad, March’s new export orders index stood at a healthy 57.5 compared to February’s 62.4 and January’s 54.7. The region’s import reading expanded to 58.1 from 57.7 in February. “Despite all of the international turmoil and uncertainty, businesses continue to expand both sales and purchases abroad,” said Goss.
Other components of the March Business Conditions Index were new orders at 65.7, unchanged from February; production or sales at 63.0, down from 65.6; and delivery lead time at 57.2, down from 64.7 in February.
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