LEADING ECONOMIC INDICATOR PLUNGES FOR OCTOBER POINTING TO FRAGILE RECOVERY

Audio Summary - November 2009

Survey results at a glance:

• Business conditions index signals frail regional economy.
• Inflation gauge indicates increasing price pressures in the pipeline.
• No jobs added in October.
• Supply managers expect holiday sales to decline by 1.6 percent from last year.

For Immediate Release: November 2, 2009

Omaha, Neb. – The October Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, slumped to 51.8 from September’s much healthier 56.2, indicating a fragile recovery, according to the latest survey results. An index of 50.0 is considered growth neutral.

“This month’s decline suggests that the economic recovery underway is going to be a disappointing one. In fact, the volatility and level of the overall index over the past several months, indicates that a double dip recession is a growing possibility. Downturns in farm income, in addition to legislative uncertainty in Washington, are having negative impacts on the regional economy,” Creighton University Economics Professor Ernie Goss said today.

After rising above growth neutral for September, the employment index dipped to 50.0 from 52.1 in September. “Even though unemployment rates are declining across the region, the labor market, like the national, is not in good shape. Since October of last year, government data shows that the region has lost almost 425,000, or 3.2 percent, of its jobs. While our survey indicates the pace of job losses will diminish, I expect the region to continue to lose jobs,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Rebounding prices have accompanied the struggling regional economy. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a fifth straight month to 68.9 from September’s 68.1. “Supply managers reported that prices for raw materials and supplies rose by an average of 1.5 percent over the past year. However, recent growth in the prices-paid index due to a weak dollar and record low Federal Reserve (Fed) interest rates, will result in elevated inflationary pressures at the consumer level as early as the middle of 2010 in my judgment,” said Goss.

At the Fed’s September meeting it was announced that, “Nonetheless, with the significant under-utilization of resources expected to persist through 2011, the staff forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009.” “Supply managers in our survey think that this outlook is too optimistic. I agree with supply managers and expect inflationary pressures to rise above the Fed’s acceptable range by the middle of 2010,” said Goss.

Looking ahead six months, economic optimism, captured by the October confidence index, dipped to a still strong 65.4 from 73.4 in September. “Very low interest rates, both short-term and long-term, and a slowly improving housing market have lifted the economic outlook of supply managers in the Mid-America region. This month we asked supply managers their expectations for the holiday buying season. On average, supply managers expect holiday sales to decline by 1.6 percent from last year compared to a normal six percent growth,” said Goss.

Consistent with a weak economy, trade numbers were once again feeble. New export orders slipped to 49.3 from September’s 54.6 while imports plunged to 50.7 from 56.0.

Supply managers in the nine-state region continue to trim inventories, albeit at a slower pace. The October inventory index rose to 44.4 from September’s 43.5. “This is the 13th straight month that the inventory index has been below growth neutral. Even as business confidence has grown, we have yet to record any restocking of inventories for raw materials and supplies. Companies have been very vigilant in reducing inventories,” said Goss.

Other components of the October Business Conditions Index were new orders at 53.6, down from 64.5 in September; production or sales at 53.5, down from 66.0; and delivery lead time at 57.9, up from 54.8.

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.

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