A monthly survey of regional economic trends softened last month, indicating the effects of the sequester are growing.
The Business Conditions Index dipped for the third straight month to a still-strong 55.6 from 56.2. The index is based on a survey of business supply managers in a nine-state region and ranges between 0 and 100, with an index higher than 50 signaling growth.
The regional gauge has been significantly stronger than the national reading over the past several months, said Ernie Goss, director of Creighton University’s Economic Forecasting Group.
About 30 percent of businesses surveyed reported modest to negative effects from the sequester, Goss said, and the rest reported no impact on their companies. None of the businesses reported significant effects.
“However,” he said, “the share of businesses negatively affected has been rising slightly.”
Confidence, which is a gauge of economic optimism looking six months ahead, dropped to 51.1 from 59.4 in May and 59.9 in April. The federal spending sequestration is having little impact on the outlook, but the “rapid upturn in (mortgage) interest rates pushed supply managers’ economic outlook lower,” Goss said.
Staying above growth-neutral for the past five months, the employment reading dropped to a still-strong 53.7 from 59.3. Durable goods manufacturers continued to add jobs at a faster pace than nondurable goods producers and nonmanufacturing firms.
Increasing interest rates and a strengthening U.S. dollar will continue to have negative but modest effects for businesses, notably ones tied to agriculture, Goss said.
“Even so,” he said, “the regional job growth will remain positive but sluggish.”
Nebraska’s overall index dipped to 51.1 from 53.2. Components of Nebraska’s June index were new orders at 48.1; production or sales at 52.7; delivery lead time at 52.5; inventories at 51.3; and employment at 51.
Iowa’s overall index declined for the first time this year to a still very strong 69.3 from 70. Components of Iowa’s index were new orders at 77.7; production or sales at 70.2; delivery lead time at 54.8; employment at 70.5; and inventories at 73.3.
Goss said Nebraska and Iowa are the only states in the region to experience very healthy growth for both durable and nondurable goods manufacturers, but his surveys point to “slower growth for the overall Nebraska economy in the months ahead.
For the nine-state region, new exports declined to 52.9 from 55.9 and imports slid to 52.9 from 53.5.
Other components were new orders at 57, up from 54.8; production or sales at 60.3, up from 57.3; and delivery lead time at 55.4, up from 53.6. The prices-paid index dropped for the fourth straight month to 58.4 from 61.2 and inventories declined to 51.6 from 56.2 in anticipation of expanding sales, Goss said.
“This inventory accumulation will contribute to regional growth in the months ahead,” he said. “Declining readings are another indicator of positive but slowing economic growth for the region.”