Midwest economic index dips but suggests growth

The economic outlook in nine Midwest and Plains states remains positive, but a new report released Thursday suggests businesses in the region are less confident in their prospects than they were this spring.

The overall Mid-America Business Conditions index declined to 62.5 in June from May's 64.2. That's the first decline in the past seven months, but the reading remains positive because any score over 50 suggests economic growth in the next three to six months.

The confidence index slipped to 59.4 in June from May's 69 and April's 72.9.

"It is clear supply managers are becoming less confident about the economy," said Creighton University economist Ernie Goss.

The economic turmoil in Europe hasn't slowed business expansion in the Midwest, Goss said. The monthly report covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

"While there remains weakness in the consumer sector, our survey of manufacturers and value-added service companies over the past several months signals very positive growth for the regional economy into the fourth quarter of this year," said Goss, who oversees the survey.

The report, which is based on a survey of supply managers and business leaders, uses a collection of indexes that range from zero to 100, and any score above 50 suggests economic growth in the next three to six months. Scores below 50 suggest a contracting economy.

The regional employment index declined to 58.3 in June from May's 60.1, but it remained above growth neutral and 30 percent of the businesses reported increasing employment. But the region's work force is still about 3.5 percent smaller than it was at the beginning of the recession.

"Even though the region will continue to add jobs, I expect unemployment rates for most states in the region to remain at elevated levels as firms remain overly cautious about hiring new workers," Goss said.

Hiring has improved but the pay outlook hasn't, Goss said. About 6 percent of the supply managers said they expect a pay reduction next year. That's up from 1 percent in January.

The prices-paid index, which tracks the cost of raw materials and supplies, fell to 68.8 in June from May's 80. Nevertheless, inflation remains a concern.

The improving global economy helped June's export orders index improve to 60.9 from May's 59.

The import index declined to 54.9 in June from May's 63.2.

For the fifth consecutive month, inventory levels increased in the region. The inventory index climbed to 55.1 in June from the previous month's 54.6.

Goss said inventory growth has been a positive factor, but consumer spending needs to increase before the prospect of another recession can be ruled out.

"Inventory buildups are not the basis for sustained economic growth," Goss said.

Other components of the overall index:

- New orders declined to 67 in June, from May's 72.4.

- Production or sales slipped to 70.6 in June from 72.2.

- Delivery lead time declined to 61.4 from May's 62.1.

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Online: Creighton Economic Forecasting Group

(Copyright 2010 by The Associated Press. All Rights Reserved.)

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