MID-AMERICA LEADING ECONOMIC INDICATOR UP AGAIN; POINTS TO JOB GROWTH IN MONTHS AHEAD

Survey results at a glance:

• Leading economic indicator climbs to highest level since May 2006.
• Job gains recorded for the third straight month.
• Inflation gauge expands to highest level since July 2006.
• Only 11 percent of firms expect to lay off workers in next 6 months.

For Immediate Release: April 1, 2010

OMAHA, Neb. – The March Business Conditions Index for the Mid-America region climbed for a fourth straight month, pointing to a growing economy in the months ahead, according to the March Business Conditions survey of supply managers and business leaders in the nine-state region.

The index advanced to 64.3, its highest level since May 2006, up from last month’s 61.0. An index of 50.0 is considered growth neutral for the leading economic indicator.

“The region’s manufacturing and value-added services sectors are experiencing very strong business activity. I expect this increase in activity to extend over to the rest of the regional economy in the months ahead. As indicated in earlier reports, I expect the region to record overall job growth for the first quarter of 2010. However, job additions for the first quarter will be muted as firms continue to take a cautious approach to hiring. For the next six months, 28 percent of the firms reported that they planned to add workers, while only 11 percent indicated that they expected layoffs. The remaining 61 percent expected no job additions for the next six months,” Creighton University Economics Professor Ernie Goss said today.

For a third straight month, the regional employment index rose above growth neutral. The March job reading bounced from February’s 56.1 to 57.9. For March, 28 percent of supply managers reported job gains for their firms, while only 12 percent indicated that their firms reduced employment.

“This is the first time that we have recorded three straight months of employment indices above growth neutral since July 2007. Despite this upturn, I expect unemployment rates for most states in the region to remain at elevated levels as firms remain overly cautious about hiring new workers,” 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 a 10th straight month to 80.5 from 78.3 in February. “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 the stimulative federal government 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. As a result, I expect the Fed to raise the federal funds rate by .25 percent before the end of the second quarter of this year,” said Goss.

Looking ahead six months, economic optimism, captured by the March confidence index, dipped slightly to a still strong 70.1 from February’s 73.0. “Record low interest rates, a stabilizing job market and recent declines in the nation’s unemployment rate buoyed the economic optimism of supply managers in the Mid-America region,” said Goss.

An improving global economy continues to push exports higher. New export orders advanced to 61.6, its highest level since the beginning of the recession in December 2007 and up significantly from February’s 55.4. The improving regional economy has also contributed to healthy imports with a March index of 57.0, down slightly from 58.8 in February. “Despite the recent appreciation in the value of the dollar, making U.S. goods less price competitive abroad, I expect exports to be an important ingredient of the regional economic recovery in the months ahead,” said Goss.

For a second consecutive month, supply managers in the nine-state region increased their inventory levels. The March inventory index inched upward to 57.5 from 57.4 in February. “Prior to February, we had recorded 16 straight months of inventory reductions for firms in the region. The current restocking will spillover into the rest of the economy in the coming months. This month, only 16 percent of supply managers reported that they would likely reduce inventory levels in the next 3 months. On the other hand, 22 percent expect to increase their inventory levels of raw materials and supplies for the next quarter,” said Goss.

Other components of the March Business Conditions Index were new orders at 72.1, up from February’s 66.1; production or sales at 72.2, up from 67.3; and delivery lead time at 61.8, up from February’s 58.4.

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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