Mid-America Leading Indicator Rises to Four Year High: European Turmoil Fails to Slow Exports

May survey results at a glance:
· Leading economic indicator climbs to highest level in almost 4 years.
· Largest job gains since June 2006.
· Almost 21 percent of respondents reported negative impacts for their firm from Europe’s economic turmoil.
· Over 72 percent of the purchasers expect any new cap and trade law to increase prices.
· Purchasers report very healthy export orders and imports for the month.

For a video summary, go to:

http://www.youtube.com/watch?v=ChD906q92Bw

The May Business Conditions Index for the Mid-America region advanced for a sixth straight month, pointing to a growing economy in the months ahead, according to the May Business Conditions survey of supply managers in the nine-state region.

The index expanded to 64.2 from April’s very healthy 61.7. An index of 50.0 is considered growth neutral for the leading economic indicator. This was the sixth straight month that the index has risen above growth neutral signaling a healthy economic recovery for the regional economy in the months ahead.

The financial turmoil in Europe is a threat to the economic expansion underway. It has increased the value of the dollar, which has made U.S. manufactured goods and farm products less competitive abroad. The flight to the safety of U.S. Treasury bonds, if sustained, will have significant and negative impacts on agriculture income and on economic prospects for industries with linkages to agriculture. This month we asked supply managers how the European economic problems are affecting their firms. Almost 21 percent of respondents reported negative impacts for their firm from Europe’s turmoil. The remaining 79 percent indicated little or no impacts to date. In my judgment, more negative impacts will surface if the dollar continues to appreciate against the Euro.

Ernie Goss