Agriculture, Energy Help Bolster Mid-America States Economy

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The economy is gaining strength in nine Midwest and Plains states because global growth and continued low interest rates have provided a boost to agriculture and energy businesses, according to a new survey released Feb. 1.

“The regional economy is beginning the year on a very healthy note,” Creighton University economist Ernie Goss said. “Over the past year, farm commodity prices have risen by 18 percent. This rapid price growth is showing up in farmers’ income and in industries tied to agriculture.”

The overall Mid-America business conditions index rose for the fourth straight month, to 58.9 in January. That compares with 57.5 in December, 55.9 in November and 52.3 in October.

January was the 14th consecutive month that the index came in above growth neutral.

The monthly report, which is based on a survey of supply managers and business leaders, uses a collection of indexes that range from zero to 100. Any score above 50 suggests growth in that index over the next three to six months while a score below 50 suggests contraction.

January’s overall score of 58.9 suggests economic growth in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. The overall index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time.

Goss, who oversees the report, said the region’s employment index improved to 56.3 in January from December’s 51.1 and November’s 53.

“The more dependent the area is on agriculture and energy, the stronger the new hiring,” Goss said.

The prices-paid index, which tracks cost inflation, remained high at 84.2 in January. That was up from December’s 81.1.

“Prices for raw materials, commodities and supplies are increasing at an unsustainable pace,” Goss said.

Nevertheless, business leaders remain optimistic about the coming six months. The confidence index rose to 74.8 in January from December’s 69.9 to hit its highest level since April 2004.

State-by-state results of the January survey in the Mid-America region:

Iowa: The state’s overall index remained above growth neutral for the 13th month in a row. It climbed to 64.0 in January from 56.8 in December. Components were new orders at 78.2, production or sales at 68.0, delivery lead time at 65.8, employment at 53.5 and inventories at 54.6.

“With the largest agriculture sector among the nine Mid-America states, Iowa’s industries linked to agriculture, except for food processing, have experienced very healthy growth over the past several months. This growth will continue for the first half of 2011, particularly for durable-goods producers tied to agriculture and the global economy,” Goss said.

Kansas: Kansas’ overall index rose above growth neutral in January, hitting 53.2 compared with 48.4 in December. Components were new orders at 57.2, production or sales at 54.4, delivery lead time at 61.1, employment at 41.5 and inventories at 52.2.

“We are beginning to see upturns in the state’s durable- and nondurable-goods producers,” Goss said. “Continuing global economic expansion combined with a relatively cheap U.S. dollar will be very positive for Kansas growth prospects for the first half of 2011.”

Minnesota: The state’s overall index came in above growth neutral for the 18th straight month. It rose to 55.2 in January from 52.0 in December. Components of the index were new orders at 56.0, production or sales at 61.9, delivery lead time at 58.3, inventories at 49.5 and employment at 50.5. The state’s agricultural sector is second-largest among the nine Mid-America states, Goss said.

“Thus expansions among firms tied to agriculture and international markets have been an important component of Minnesota’s recent growth. On the other hand, the state’s construction industry continues to slow overall state job growth,” he said. “I expect the state to continue to add jobs for the first half of 2011. This pace will be stronger than the last half of 2010.”

Missouri: For the 19th straight month, Missouri’s overall index remained above growth neutral. It inched upward to 57.5 in January from 57.4 in December. Components were new orders at 58.1, production or sales at 59.2, delivery lead time at 57.5, inventories at 55.3 and employment at 57.6.

“Except for food processors, nondurable-goods manufacturers in the state continue to experience weak economic conditions,” Goss said. “Durable-goods manufacturers, except for those tied to transportation equipment, reported improving economic conditions. Firms involved in and/or tied to vehicle manufacturing have experienced somewhat erratic growth with little new hiring for 2010 and now into 2011,” he said.

Nebraska: Nebraska’s index dropped slightly in January, to 55.7 from 56.4 in December. Components were new orders at 53.3, production or sales at 58.2, delivery lead time at 56.3, inventories at 55.6 and employment at 56.9.

“Nebraska has the third-largest agriculture sector among the Mid-America states. This has been an important component of both overall and manufacturing growth, with both durable- and nondurable-goods producers expanding at a modest but improving pace,” said Goss.

North Dakota: The state index rose to 54.8 in January from 51.3 in December. Components were new orders at 46.3, production or sales at 45.9, delivery lead time at 68.3, employment at 46.0 and inventories at 67.6.

“Among the nine Mid-America states, North Dakota is second only to Oklahoma in its dependence on agriculture and energy to drive economic growth,” Goss said. “A combination of an expanding global economy and a weak U.S. dollar will push state growth at a healthy pace for the first half of 2011,” he said.

South Dakota: The state’s overall index jumped to 61.1 in January from 57.2 in December. Components were new orders at 63.2, production or sales at 64.3, delivery lead time at 41.5, inventories at 73.5 and employment at 63.0.

“South Dakota is second only to North Dakota in its dependence on agriculture for overall growth,” Goss said. “Firms tied to agriculture and international trade will experience healthy growth for the first half of 2011. This will underpin overall state growth for the first six months of 2011,” he said.