Midwest Economic Index Slips but Still Positive

The economic outlook for nine Midwest and Plains states remains positive for the months ahead, despite a small drop in April in an index that forecasts business growth, according to a report released Monday.

The Mid-America Business Conditions survey index dropped from 64.3 in March to a still-healthy 61.7 in April — the fifth straight month the index indicated growth ahead.

"While the financial turmoil in Europe is a clear risk to the recovery, manufacturing and value-added services sectors in the Mid-America region are experiencing very strong business activity," said Creighton University economist Ernie Goss, who oversees the survey.

"This leading economic activity will continue to push overall economic growth for the nine-state region higher through the third quarter of 2010," he said.

The index ranges from zero to 100. Any score above 50 suggests economic growth in the next three to six months, while a score below 50 suggests a contracting economy in the coming months.

The survey was compiled from supply managers and business leaders in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Government data show that the region added 25,000 jobs in the first quarter of 2010, and Goss said he expects job growth in the second quarter of 2010 will be a little higher than the first quarter's annualized 0.8 percent. Those results are expected after the close of the second quarter at the end of June.

In the survey, the regional employment index in April climbed to 58.4 from 57.9 in March.

For April, 28.4 percent of supply managers reported job gains for their companies, compared with 11.6 percent who said their companies cut jobs from March levels.

Goss said he expects unemployment rates for most states in the region to remain at their current high levels as companies remain cautious about new hiring.

"There is just too much economic uncertainty right now for firms to hire more aggressively," said Goss, who is director of Creighton's Economic Forecasting Group.

The survey's prices-paid index, which tracks the cost of raw materials and supplies, rose for the 11th month in a row, to 81.2 from 80.5 in March.

Goss said the index signals 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 record federal government deficit spending, are creating price bubbles in various commodities and will ultimately contribute to inflationary pressures at the consumer level," Goss said.

Economic optimism, as indicated by the confidence index, rose last month to 72.9 from 70.1 in March.

Goss said a stabilizing job market and recent drops in the national unemployment rate are bolstering that positive outlook among supply managers surveyed in the Mid-America region.

He also said the improving regional economy has contributed to an improvement for regional exports.

The dollar has depreciated in value by 7 percent against the currency of all trading partners over the past year, Goss said.

"This decline in value is making both manufactured and agricultural goods from the U.S. more competitive abroad," he said.

Other components of the April Business Conditions Index:

— new orders at 70.0, down from March's 72.1;

— production or sales at 65.8, down from 72.2;

— and delivery lead time at 61.4, down from 61.8.