Midwest business conditions improved for a sixth month to create the highest leading economic index in nearly four years, according to a survey of supply managers released Tuesday by Creighton University.
The index grew from 61.7 in April to 64.2 in May. Any index above 50 indicates growth, while any indicator below 50 signals economic contraction.
Report author and Creighton University economics Prof. Ernie Goss described results for Minnesota and other eight states as "healthy" thanks to growth in jobs, production, sales, and delivery lead times. Raw material prices, however, are also rising, sparking some concern about "price bubbles" that could hurt consumer spending.
In Minnesota, new orders and production rose in May and suppliers started adding jobs again. The combination pushed the state's index from a "robust" 62.4 in April to an even better 64.1 in May. "Minnesota's leading economic indicator ... continues to point to advancing economic conditions ahead," Goss said. "This was the 10th straight month that Minnesota's index has risen above growth neutral."
Still, Goss cautioned that the state lost more than 125,000 jobs since the recession began. "Based on the latest state job data and Minnesota's recovery [rate] ... I would not expect the state to fully restore these jobs until September 2013," he said.
The report surveyed supply managers in Minnesota, Iowa, North Dakota, South Dakota, Nebraska, Missouri, Kansas, Arkansas, and Oklahoma. Its findings largely mimicked trends seen nationwide. The national Institute of Supply Managers report, also released Tuesday, showed May's economy in growth territory -- above 50 -- for a 10th month thanks to boosts in orders and production. May's national producers manufacturing index was 59.7 compared with 60.4 in April.
While local Midwest economies are improving, Europe's financial woes are holding some back, Goss said, adding that Europe was "a threat to the economic expansion underway."
He and other economists from Wells Fargo and the University of St. Thomas noted that the European Union's trillion-dollar bailout of Greece and the financial woes of Spain, Portugal, Italy and Ireland have caused the euro to fall and the U.S. dollar to rise. That scenario makes U.S. farm and manufactured products more expensive, threatens U.S. exports and increases the sale of U.S. Treasury bonds.
Still, officials from 3M, Donaldson Co., Polaris and other Minnesota-based manufacturers said last week that they have not yet been affected by Europe but do expect to feel the effects of negative currency exchanges in the months to come.
That reticence was apparent in Goss' economic optimism index, which measures business expectations for the next six months. May's index was a strong 69, but fell from April's powerful index of 72.9, mostly because of concerns over Europe, he said.
Other key indicators in the report showed "above neutral" growth in regional employment for a fifth month and raw-material prices for the 12th month in a row. While employment is improving across the Midwest, Goss said supply managers remain uncertain about the strength of the economy and are still hesitant to hire new workers. He doesn't expect powerful Midwest job growth for "many months," he said.
Dee DePass • 612-673-7725
