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Mid-American Economy

FLOODING SLOWS ECONOMIC GROWTH IN IOWA AND MISSOURI AS THE INDEX FOR MID-AMERICA REGION MOVES SLIGHTLY ABOVE GROWTH NEUTRAL FOR JUNE

Audio Summary -  July 2007

Survey results at a glance:

  • Business conditions index rises slightly above growth neutral.
  • Prices-paid index indicates excessive inflationary pressures.
  • Region loses jobs for the fifth time in six months.
  • Expansions in export orders prevent even more significant economic erosion.

For Immediate Release: July 1, 2008

Omaha, Neb. – Inflationary pressures at the wholesale level remained high as the overall index for the Mid-America region advanced  to a reading only slightly above growth neutral, according to the June Business Conditions survey of supply managers and business leaders in the nine-state region.

The Business Conditions Index, a leading economic indicator, grew slightly to 50.5 from May’s even weaker 49.6 and April’s 55.5. “Flooding in Iowa and Missouri and economic weakness in Kansas and Nebraska produced indicators for the month that show a regional economy teetering on recession with excessive inflationary pressures in the economic pipeline,” Creighton University Economics Professor Ernie Goss said today.

Surging energy and commodity prices have pushed the inflation gauge above 90.0.  “The index, which tracks the cost of raw materials and supplies, slipped to 91.7 from 92.0 in May and 93.1 in April.  This is the first time since we initiated the survey in 1994 that we have recorded these levels of inflationary pressure for four straight months. When the Federal Reserve’s rate-setting committee meets again on Aug. 5, it will face its toughest decision in more than a decade.  Even though the national and regional economies are clearly weak, current excessive inflationary pressures in the pipeline will prevent a rate cut, and may force a rate increase.  I think there is better than a 60 percent chance of an interest-rate increase at the August meeting,” said Goss.

The monthly employment index dropped below growth neutral for the fifth time this year with a very weak reading of 46.2, its lowest level since September 2002, and down from May’s 46.8 and April’s 49.0.  As in previous months, job expansions linked to exports and agricultural equipment sales were more than offset by deterioration in the regional job market with the exception manufacturing and value-added services.

Looking ahead six months, supply managers’ economic optimism, captured by the confidence index, dipped to 35.1 from May’s frail 38.2. “Higher energy and commodity prices combined with June flooding undermined economic confidence for the month,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Growth in new export orders for the region offset other less positive economic indicators for the month.  “The cheap dollar, which makes U.S. goods less expensive abroad, pushed the new export-orders index to a robust 59.2 from May’s strong 58.0, and April’s healthy 56.6.  At the same time, the weak dollar has increased the price of imported goods, such as oil, and pushed the import reading to a  still too high 53.8, from 56.4 in May.  The national and regional addiction to oil has prevented the import index from descending even further,” said Goss.

Other components of the month’s Business Conditions Index were new orders at 46.6, down from May’s 47.8; production at 54.4, up from 47.3; and inventories at 49.0, down from 52.7.  Flooding in portions of the region forced the delivery lead time index up to 58.7 from May’s 58.5. “Both railroad and trucking firms experienced difficulties in shipping goods in a timely manner for the month,” said Goss.

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 Institute for Supply Management, formerly the Purchasing Management Association, began to formally survey its membership in 1931 to gauge business conditions. The Creighton Economic Forecasting Group uses the same methodology as the national survey.

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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