Drought, Low Export Demand Sap Midwest Economy

September 5, 2012

An August survey suggests that the continuing drought and lessening export demand for U.S. products are among the drains on the economy in nine Midwest and Plains states, according to a report released Tuesday.

The Mid-America Business Conditions Index remained below growth neutral for a second month in a row, the first time that’s happened since July 2009, organizers said. The overall index rose to 49.7 in August from 48.7 in July. June’s figure was 57.2.

“Supply managers report that drought conditions, U.S. economic uncertainty and slowing global demand are restraining growth,” said Creighton University economist Ernie Goss, who oversees the survey. “However, the index would have to drop into the low 40s before I would anticipate a return to recessionary economic conditions.”

The survey of business leaders and supply managers uses a collection of indexes ranging from zero to 100. Any score above 50 suggests growth while a score below 50 suggests decline for that factor. The survey covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Economic optimism, as indicated by the August business confidence index, rose slightly to a weak 44.3 from July’s 38.0.

Here are the state-by-state results of the August survey in the Mid-America region:

Arkansas: The overall index for Arkansas slipped to 51.2 from 52.4 in July. Components were new orders at 40.3, production or sales at 55.9, delivery lead time at 50.7, inventories at 51.0 and employment at 58.0. “Our surveys over the past several months show a state economy that is likely to continue to expand, but at a pace that will create few jobs, leaving the unemployment rate little changed from its current level,” Goss said. “I expect Arkansas to end the year with employment down by approximately 40,000 (jobs), or 3.5 percent, from its pre-recession level.”

Iowa: Iowa’s overall index dropped to 57.1 from July’s 62.1. The index has remained above growth neutral for the past 32 months. Components of the index for August were new orders at 65.0, production or sales at 56.2, delivery lead time at 55.2, employment at 56.4 and inventories at 52.6. “While the full impact of the drought has yet to weigh heavily on Iowa’s economy, I expect that to change in the months ahead as businesses linked to agriculture experience a downturn in sales. I expect Iowa to end the year still down almost 32,000 jobs, or 2.1 percent, from its pre-recession level,” he said.

Kansas: The overall index inched up to 48.0 from July’s 47.8. Components of Kansas’ index were new orders at 40.9, production or sales at 48.3, delivery lead time at 53.5, employment at 47.4 and inventories at 52.0. The state’s employment is still down by more than 35,000 from its pre-recession level. “Recent surveys point to slow to no job growth in the months ahead for the Kansas economy,” said Goss.

Minnesota: After almost three years of expansion, the overall index for Minnesota remained below growth neutral for a second straight month. The index rose to a still weak 49.7 from 45.6 in July. Components of the August index were new orders at 41.5, production or sales at 47.0, delivery lead time at 60.8, inventories at 47.3 and employment at 51.7. “Minnesota’s economic and job growth were strong for the first half of 2012. Despite solid gains the state is still down approximately 60,000 jobs, or 2.2 percent, from its pre-recession level,” Goss said. Losses in nondurable-goods manufacturing are weighing on the state economy, with little job growth expected for the Minnesota economy in the next three to six months, he said.

Missouri: The overall index climbed in August to 53.9 from July’s 50.2. Components were new orders at 51.0, production or sales at 55.3, delivery lead time at 56.5, inventories at 49.3 and employment at 57.3. Despite very healthy job gains for the first half of 2012, Missouri’s employment is down by more than 105,000 jobs, or 3.8 percent. “Surveys over the past few months point to less than stellar but positive gains for the next three to six months,” Goss said.

Nebraska: After remaining above growth neutral for 22 straight months, Nebraska’s overall index has been below 50.0 for two consecutive months. The August index dipped to 47.8 from July’s 48.3. The June figure was 54.5. Components of the August index were new orders at 42.6, production or sales at 45.8, delivery lead time at 52.9, inventories at 50.0 and employment at 47.9. “Nebraska experienced healthy growth for the first half of 2012 with the state’s current employment level down by only 6,300 (jobs), or 0.7 percent, from its pre-recession level. However, our recent surveys point to no job gains for the next three to six months,” Goss said.

North Dakota: The overall index rose to a regional high of 57.4 from July’s 56.5. Components were new orders at 66.9, production or sales at 62.0, delivery lead time at 61.8, employment at 54.6 and inventories at 41.8. North Dakota is one of a few U.S. states with current employment levels above pre-recession levels. “Our surveys point to continuing growth for North Dakota, but at a slower pace,” said Goss.

Oklahoma: Oklahoma’s overall index rose to 53.6 from 52.7 in July. Components of the August index were new orders at 56.3, production or sales at 52.3, delivery lead time at 56.3, inventories at 49.4 and employment at 53.6. “Durable- and nondurable-goods manufacturers in the state, especially those linked to energy, continue to experience healthy growth,” Goss said. Oklahoma’s employment level is 0.5 percent above its pre-recession level. “I expect the state to continue to add jobs in the next three to six months, but at a slower pace than that experienced in the first half of 2012,” Goss said.

South Dakota: South Dakota’s overall index remained below growth neutral, coming in at 47.2 for August, compared with 46.0 in July. Components of the index were new orders at 45.8, production or sales at 51.4, delivery lead time at 49.9, inventories at 40.7 and employment at 48.2. “South Dakota’s employment level has now bounced above its pre-recession level. However, recent surveys point to slow to no job gains for the next three to six months,” Goss said.