The August Mid-America Business Conditions Index was down in August at 48.4…the first decline since January. Creighton University Economics Professor Ernie Goss says the decline was a surprise considering past reports seemed to be point toward an economic recovery.
“We had been moving out of the recession, at least according to supply managers and now there’s this economic hiccup. Now we’ll have to wait and see what the next survey has in store for us. But right now it was not a good report, certainly indicating at best that this recovery is very soft.”
Supply managers continue to trim inventories. The index declined to 39.8, and Goss says he expects to see inventories replenished by the end of the year…but right now he says, businesses are still in a cost reduction mode.
“Every Cost. They are trying to keep costs to a minimum. Inventory carrying costs to a minimum, employee cost to a minimum, benefit costs to a minimum…In other words when you can’t grow your revenue, you tend to move toward costs and that’s what we’re seeing.”
Goss says the downturn in farm income is taking its toll on the nine-state region, especially in the rural areas. For some time Goss has said the farm economy was holding up this part of the country…but Goss says he’s that’s not the case now.
“The farm economy is to some degree bringing down the rest of the overall economy, particularly in rural areas. Urban areas, particularly larger urban areas not seeing not seeing the impacts yet, so those are doing pretty well.”
While Goss doesn’t survey retailers, he says the low inventory points to what could be a very slow holiday shopping season:
“These early numbers, it’s gonna be a tough, tough holiday buying season. Likely one of the poorest we’ve seen in perhaps a couple of decades…and that’s certainly scary for some of the retailers out there that have been waiting for the economy to turn around.
Goss says the survey is indicating heightened inflationary pressures in the months ahead and he says consumers, business leaders and investors need to brace for higher inflation and higher interest rates in 2010.