LEADING ECONOMIC INDICATOR SINKS BELOW GROWTH NEUTRAL FOR NOVEMBER; DOUBLE DIP RECESSION A POSSIBILITY FOR REGION

Survey results at a glance:

• Business conditions index drops to its lowest level since May.
• Inflation gauge indicates increasing price pressures in the pipeline.
• Only 12 percent of firms reported an increase in employment, while 19.5 percent indicated their firms reduced jobs.
• Over 41 percent of supply managers expect layoffs in the months ahead, and only 48 percent anticipate a pay increase in 2010.
• Minnesota and Oklahoma were the only states with an increase in leading indicator.

For Immediate Release: December 1, 2009

Omaha, Neb. – The November 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 its lowest level since May of this year. The index stood at 47.5, which was down from October’s 51.8 and September’s much healthier 56.2. An index of 50.0 is considered growth neutral.

“This month’s plunge below growth neutral raises the possibility of a double-dip recession for the region. The significant decline in farm income for 2009 continues to weigh on firms with strong ties to agriculture. For example, agriculture-equipment manufacturers have been hard hit by farmers’ reluctance to purchase new equipment. This downturn has been particularly significant for rural areas of the region,” Creighton University Economics Professor Ernie Goss said today.

After rising to growth neutral for October, the employment index sank to 46.1. “Over the past year, the region’s employment level is down by 400,000, or roughly 3 percent of its jobs. Based on recent survey results, I expect the region to continue to lose jobs with unemployment rates rising slightly. This month, supply managers were asked about possible layoffs at their companies; over 41 percent anticipate that layoffs lie ahead. As a result of the weak labor market, only 48 percent of the supply managers expect to receive pay increases in 2010,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Rebounding prices have accompanied job losses for the region. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a sixth straight month to 68.0, down slightly from 68.9 in October. “The weak U.S. dollar is pushing up commodity prices across the board. Our wholesale inflation gauge is pointing to elevated inflation at the consumer level as early as the middle of 2010 in my judgment,” said Goss.

At the Fed’s November meeting, its rate setting board announced that it expects the nation’s inflation rate, excluding food and energy, to decline over the course of the next two years. “Supply managers in our survey think that this outlook is too optimistic. I agree with the supply managers and expect inflationary pressures to rise above the Fed’s acceptable range of 1.75 percent to 2.0 percent by the middle of 2010,” said Goss.

Looking ahead six months, economic optimism, captured by the November confidence index, dipped to a still strong 61.1 from 65.4 in October. “Improvements in the housing market, along with very low interest rates, have lifted the economic outlook of supply managers in the Mid-America region,” said Goss.

Consistent with a weak economy, trade numbers were once again anemic. New export orders inched higher to 50.0 from 49.3 in October, while imports sank to 47.8 from October’s 50.7. “The weaker U.S. dollar that is making imported goods more expensive is contributing to the decline in goods purchased from abroad and rising inflation pressures,” said Goss.

Supply managers in the nine-state region continue to reduce inventories. The November inventory index slipped to 43.6 from October’s 44.4. “This is the 14th 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. Any significant re-stocking will be a very positive factor for the regional economy,” said Goss.

Other components of the November Business Conditions Index were new orders at 47.3 down from 53.6 in October; production or sales at 46.7, down from 53.5; and delivery lead time at 53.9, down from 57.9.

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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