Survey shows very weak quarter ahead for regional economy

Iowa's business conditions index declined to 56.5 in September, from 57.1 in August

A survey of supply managers at manufacturers in Iowa and eight other Midwestern states forecasts slight positive economic growth for the final quarter of this year.

After two months below a growth neutral reading of 50, the monthly Mid-America Business Conditions Index inched above the threshold for September. The business conditions index rose to a weak 50.4 last month from 49.7 in August.

"Growth in the regional economy has definitely slowed," said Ernie Goss, director of Creighton University’s Economic Forecasting Group, which conducts the monthly survey.

"Surveys over the past several months point to flat to slight growth for the fourth quarter of this year.  However, two states with significant dependence on energy, North Dakota and Oklahoma, will continue to expand at a solid pace in the final quarter of the year according to our survey results."

Iowa’s business conditions index declined to 56.5 in September, from 57.1 in August. The overall index has remained above growth neutral for the last 33 months.

"Both (Iowa) durable and nondurable goods manufacturers continue to report expanding economic conditions with job gains," Goss said. "The 2012 drought has yet to put a dent in business activity for agriculture equipment manufacturers in the state, but has negatively influenced retail sales."

The economic slowdown is pushing the regional employment index lower. The index sank below growth neutral last month to a weak 46.1,  from 49.5 in August, the lowest job reading recorded since shortly after the recession ended in 2009.


"The manufacturing sector has been shedding jobs over the past several months," Goss said. "I expect the regional economy to lose both manufacturing and non-manufacturing jobs, albeit at a slow pace, in the final quarter of 2012.  Gains for Iowa, North Dakota and Oklahoma will be more than offset by losses for the other six states in the region."

Iowa could lose manufacturing jobs in the final quarter at Rockwell Collins if Congress fails to halt budget sequestration. Resulting across-the-board federal budget cuts are expected to delay, reduce or halt some defense contracts involving the Cedar Rapids aerospace electronics company.

New export orders once again declined for the month across the nine-state region, but at a slightly slower rate than for August. The new export orders index advanced to 48.7 from 48.3 in August.

At the same time, September imports contracted for the month with an index of 48.9, down from 51.4 in August.

"Weaker global and regional economic growth contracted both import and export readings," Goss said. "Given the importance of exports to past regional growth, the downturn in new export orders is another factor that will contribute to a final quarter that is lackluster."

Looking ahead through the first quarter of 2013, the business confidence index climbed slightly to a weak 44.7 in September, from August’s reading of 44.3.

"Supply managers, much like the entire business sector, remain very pessimistic regarding future economic conditions," Goss said. "The looming fiscal cliff, the elections, and European economic turmoil are all weighing on economic confidence."



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