Inflationary pressures in the Mid-America region declined as growth continued to slow, according to the October Business Conditions Survey of supply managers and business leaders in the nine-state region.
The overall Business Conditions Index, a leading economic indicator, declined to 55.1, its lowest level since April 2003 and down from September’s 57.0.
“As growth has slowed inflationary pressures have cooled. The prices-paid index, which tracks the cost of raw materials and supplies, dropped to 73.1, its lowest level since July 2005 and down from September’s 75.2. With growth and inflationary pressures moving lower, I expect the Federal Reserve to make no change in short-term interest rates for the remainder of 2006. In fact, I expect the next move by the Fed will be to reduce short-term rates,” Creighton University Economics Professor Ernie Goss said today.
Consistent with the downturn in the overall index, the October employment reading declined for the fifth consecutive month to 54.2 from September’s 56.5 and August’s 57.0.
“Although the region added jobs for October, businesses are reporting clear and significant pullbacks in growth for new hiring. I expect job growth in the final quarter of 2006 to be about 80 percent of the gains for the second quarter of this year. The downturn in growth will come primarily from the region’s durable goods manufacturing sector,” said Goss, director of the Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Looking ahead six months, supply managers’ economic optimism moved higher as lower oil prices and a halt to rate hikes by the Federal Reserve boosted the confidence index to 55.8 from September’s 51.2 and August’s anemic 47.4. “Comparing this year’s survey results with previous years indicates an upturn in Christmas buying over last year. However, the increase will be modest by historical standards as the economy deals with elevated energy prices and a downturn in the housing sector,” said Goss.
Other components of October’s overall index were new orders at 55.6, relatively unchanged from September’s 55.8, production at 55.7, down from 60.1, inventories down to 56.3 from 57.1, and delivery lead time at 53.3 down from 54.6.
Trade numbers were much improved for October as the new export orders index spiked to 54.9, its highest reading since May of this year. “Importantly, lower oil prices pulled the import index to 53.2, it lowest level since December 2005. Regional and national trade numbers point to an improving U.S. trade position in the months ahead,” 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.