Aided by strong exports and a strong farm economy, a regional index of nine states increased for the first time in six months. As a result, Omaha economist Ernie Goss said he’s expecting positive growth for the final quarter of the year.
But he noted that the Mid-America economy survey points to a fourth-quarter growth rate of about half the rate of the first quarter. Both exports and farm income growth are down from earlier in the year, said Goss, director of Creighton University’s Economic Forecasting Group.
August’s Business Conditions Index bumped up to 53.8 from 53.5 in July. The index — which is based on a survey of business supply managers in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota — ranges between 0 and 100, with an index higher than 50 indicating growth.
Confidence, or economic optimism, remained above growth-neutral, dropping to 53.9 from 56.9 in July. Goss pointed to international tensions and “uncertainty surrounding implementation of health care reform” for the decline.
Lower federal spending from the sequester, however, isn’t affecting supply managers’ outlook. In August, about two-thirds of supply managers reported that sequestration cuts have had no impact to date on their business. Less than one-third reported only modest effects from sequestration, and only 1 percent of businesses reported significant effects.
“The federal spending sequestration remains a non-event in terms of the regional economy,” Goss said.
Nebraska’s overall index moved above growth-neutral to 50.6 from 49.1, with new orders at 52.4, production or sales at 51.6, delivery lead time at 49.6, inventories at 48.3 and employment at 51.3. Goss said durable and nondurable manufacturers are pushing the state’s overall manufacturing sector forward for the month, adding that food processors in Nebraska also experienced solid business growth.
In Iowa, the overall index declined for the third straight month to a still-strong 65.6 from 67.4. New orders were at 77.1, production or sales at 73.2, delivery lead time at 51.5, employment at 61.7 and inventories at 64.4. Goss called Iowa’s manufacturing sector the strongest in the region for the month.
Overall, employment has remained above growth-neutral for the past seven months, dipping in August to 52.8 from 55.3. Goss said that nondurable goods manufacturers are cutting employment in the region and nondurable goods firms, with the exception of food processors, lost some jobs for the month.
Meanwhile, after eight straight months of inventory gains, supply managers reported pullbacks in the level of raw materials and supplies to support future production. The inventory index declined to 49.4 from 52.7 in anticipation of slower sales, while the import index dropped below growth-neutral to 49.3 from 53.6. The new export orders index increased to 56.2 from 50.
Looking at other components, new orders were 56.8, up from 52.2; production or sales was 60.1, up from 54.2; and delivery lead time was 50, down from 53.3.
The prices-paid index, which tracks the cost of purchased raw materials and supplies, increased for the first time since February to 61.8 from 58. Goss said he’s concerned that index results may be “the first signal that the period of benign inflation is over” and upturns in inflationary pressures and asset price bubbles could push the Fed to begin reducing or tapering quantitative easing 3 (QE3) — its policy of purchasing bonds and other assets to stimulate the economy — at the next meeting of its interest-rate-setting committee later this month.
“This will mean that interest rates will move somewhat higher in the weeks and months ahead,” he said.