Business index points to growth.

Despite a slight drop in the Arkansas Business Conditions Index for July, at least one sector, durable good manufacturers, can look forward to growth in the second half of the year.

The Mid-America Business Conditions Index, put out by Creighton University economics professor Ernie Goss, declined in July while inflationary pressures remained strong, according to the monthly survey of supply managers and business leaders in the nine-state region.

The overall regional index, a leading economic indicator, declined to 64.2 for July from June's brisk 68.2. The Arkansas index dropped to 64.6 from June's 67.

The Business Conditions Index ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

Components of the Arkansas index of supply managers were: new orders at 66, production at 68, delivery speed at 76, a regional high inventories at 60 and employment at 52.

"Durable goods manufacturers, in comparison to the other sectors, report much stronger growth with increasing employment, a longer work week and higher new orders," said Goss. "This will show up in improved wage growth in the second half of the year as Arkansas' higher wage sector experiences expanding economic conditions."

For the region, Goss said, "The prices-paid index declined for the third straight time in July, but at 83.4, inflationary pressures at the wholesale level remain above desired levels. The Federal Reserve Open Market Committee raised rates a quarter percent at its June meeting. Even with higher commodity prices, especially oil, I expect a rate hike at the August meeting of a 'measured' one-quarter percent, or 25 basis points."

The employment index for the region was weaker in July at 61.5 compared to June's 65.4.

"Hiring in the region has been very strong for the first half of the year with annualized job growth exceeding 2 percent. Between 1995 and the beginning of the recession in 2001, regional employment expanded at a pace slightly less than 2 percent per year. What we're seeing in July is consistent with that same solid pace for the second half of 2004," said Goss.

"Oil prices, at a record $43 per barrel in nominal terms, continue to cut into business profitability and slow growth," said Goss.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states for more than 10 years to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, and South Dakota.