Mid-American Economy

Mid-America December Index Expands:
Labor Shortages Slow Employment Growth 

December survey highlights:

* After declining for three straight months, the Business Conditions Index rose for the month, remaining above growth neutral for the 25th straight month.
* Labor shortages pulled the employment index down to growth neutral, but more importantly, slowed quarter four growth.
* Trade numbers, both exports and imports, fell significantly for the month.
* 2019 profit outlook remains strong. 

OMAHA, Neb. (Jan. 2, 2019) – The December Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rose for the first time since August, pointing to positive economic growth for the next three to six months. 

Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 55.2 from November’s 54.1. This is the 25th straight month the index has remained above growth neutral 50.0. 

“The regional economy continues to expand at a positive pace. However, as in recent months, shortages of skilled workers remain an impediment to even stronger growth. Furthermore, supply managers are reporting negative impacts from tariffs and trade skirmishes,” said Ernie Goss, PhD, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.  

As reported by one supply manager in the December survey, “Current tariffs and trade restrictions could become more difficult for us in the upcoming months. So far, the main thing is that it is costing us more to buy foreign products.”  

Employment: The December employment index sank to 50.0 from 57.5 in November.  

“Overall manufacturing employment growth in the region over the past 12 months has been very healthy at 2.3 percent, compared to a lower 2.2 percent for the U.S,” said Goss. “I expect this gap to close in the months ahead as regional job growth slows faster than national manufacturing job growth Regional job growth for durable goods producers has been approximately four times that of nondurable goods manufacturers over recent months.”  

Wholesale Prices: The wholesale inflation gauge continues to indicate elevated inflationary pressures. However, lower oil prices softened the December index to 69.5 from November’s 70.0.  

Both Creighton’s regional wholesale inflation index and the U.S. inflation gauge are elevated. Tariffs and expanding growth, for example, have boosted steel prices by 19.8 percent over the past 12 months. At the consumer level, the consumer price index advanced by 2.2 percent over the past 12 months.  

“I expect lower oil prices and slowing growth to push both wholesale and consumer inflation lower,” Goss said. “I expect the Federal Reserve to announce at their next meeting on Jan. 30 that any additional rate hikes will be data dependent. At the Dec. 19 meeting, the Fed was more locked in on two rate increases for 2019. The Fed is likely to remove that certainty at the January meeting.”  

Confidence: Looking ahead six months, economic optimism, as captured by the December Business Confidence Index, fell to a still solid 54.1 from November’s 55.5.  

“However, I expect business confidence to depend heavily on the Fed’s interest rate policies and trade talks with China. Approximately 43.2 percent, of supply managers expect business profits for their company to improve in 2019,” reported Goss. 

Inventories: Companies contracted inventories of raw materials and supplies for the month. The December inventory index sank to 47.4 from November’s 53.3. 

Trade: The regional trade numbers turned sharply lower for December. The new export orders index slumped to 48.1 from November’s 51.8, and the import index plummeted to 41.1 from 54.3 in November. “Despite higher tariffs on imported goods, healthy regional growth boosted imports for the month,” said Goss.   

One supply manager indicated his firm had resourced supply purchases from China to India. He does not expect to return to buying from Chinese firms. According to the supply manager, “Prices and quality from our new Indian supplier are just as good as from our old Chinese provider.” 

Another supply manager reported, “Tariffs and trade wars will ruin our economy. (The) Government is not setting the right example.” 

Other survey components: Components of the Business Conditions Index were new orders at 55.5, up from November’s 51.2; the production or sales index at 55.4, up from 52.2 in November; and speed of deliveries of raw materials and supplies index up sharply to 67.6 from last month’s 56.5.  

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 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.  

The forecasting group’s overall index, referred to as 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. The Business Conditions Index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time. This is the same methodology, used since 1931 by the Institute for Supply Management, formerly the National Association of Purchasing Management. 

Arkansas: The December Business Conditions Index for Arkansas fell to 50.5 from November’s 53.9. Components of the index from the monthly survey of supply managers were new orders at 51.8, production or sales at 50.7, delivery lead time at 62.0, inventories at 42.7, and employment at 45.3. “Over the past 12 months, Arkansas’ job market has been the weakest in the nine-state region with the state’s unemployment rate remaining at a regional high of 3.3 percent with 10,000 more workers joining the ranks of the unemployed. For 2019, I expect that the leading industry in Arkansas will be outside of manufacturing and in business services and the lagging industry to be natural gas drillers. Predicted 2019 economic growth: eighth among nine regional states,” said Goss.  

Iowa: The December Business Conditions Index for Iowa expanded to 53.5 from November’s 52.8. Components of the overall index from the monthly survey of supply managers were new orders at 52.4, production or sales at 51.5, delivery lead time at 63.0, employment at 52.4, and inventories at 48.3. “Over the past 12 months, Iowa’s job market has been the strongest in the nine-state region with the state’s unemployment rate declining from 2.5 percent to 1.9 percent the ranks of the unemployed falling by 10,000. For 2019, I expect that the leading industry for Iowa will be metal producers and the lagging industry to be slaughter houses. Predicted 2019 economic growth: second among nine regional states,” said Goss. 

Kansas: The Kansas Business Conditions Index for December sank to 49.7 from November’s 51.6. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 51.2, production or sales at 49.9, delivery lead time at 61.0, employment at 44.6, and inventories at 42.0. “Over the past 12 months, Kansas’ job market has been strong and improving with the state’s unemployment rate falling from 3.1 percent to 2.9 percent with state’s unemployed ranks declining by 3,000 workers. For 2019, I expect that the leading industry for Kansas will be the aircraft and aircraft parts industry. This industry, however, will count on an improving trade picture. The state’s 2019 lagging industry to be slaughter houses. Predicted 2019 economic growth: fifth among nine regional states,” said Goss. 

Minnesota: The December Business Conditions Index for Minnesota climbed to 55.5 from November’s 53.9. Components of the overall December index from the monthly survey of supply managers were new orders at 57.2, production or sales at 52.5, delivery lead time at 70.3, inventories at 44.2, and employment at 53.4. “Over the past 12 months, Minnesota’s job market has been very healthy and improving with the state’s unemployment rate falling from 2.8 percent to 2.2 percent and the state’s unemployed ranks declining by 18,000 workers. For 2019, I expect that the leading industry for Minnesota will be manufacturers of medical equipment and supplies. I expect the state’s 2019 lagging industry to be transportation equipment producers. Predicted 2019 economic growth: third among nine regional states,” said Goss.  

Missouri: The December Business Conditions Index for Missouri declined to 53.9 from 54.7 in November. Components of the overall index from the survey of supply managers were new orders at 54.6, production or sales at 54.4, delivery lead time at 66.5, inventories at 45.8, and employment at 48.1. “Over the past 12 months, Missouri’s job market has been very healthy and improving with the state’s unemployment rate falling from 3.1 percent to 2.5 percent and the state’s unemployed ranks declining by 18,000 workers. For 2019, I expect that the leading industry for Missouri will be transportation equipment manufacturers, excluding vehicle producers. I expect the state’s 2019 lagging industry to be motor vehicle manufacturers. Predicted 2019 economic growth: fourth among nine regional states,” said Goss. 

Nebraska: The December Business Conditions Index for Nebraska dipped below growth neutral to 49.7 from November’s 51.3. Components of the index from the monthly survey of supply managers were new orders at 51.3, production or sales at 50.1, delivery lead time at 61.2, inventories at 42.2, and employment at 44.8. Over the past 12 months, Nebraska’s job market has been healthy and stable with the state’s unemployment rate falling from 2.5 percent to 2.3 percent and the state’s unemployed ranks declining by 800 workers. For 2019, I expect that the leading industry for Nebraska will be machinery manufacturing (depending on Chines trade deal). I expect the state’s 2019 lagging industry to be printing and published. Predicted 2019 economic growth: sixth among nine regional states,” said Goss. 

North Dakota: The December Business Conditions Index for North Dakota fell to 52.6 from 57.6 for November. Components of the overall index were new orders at 53.5, production or sales at 52.9, delivery lead time at 64.7, employment at 47.0, and inventories at 44.6. “Over the past 12 months, North Dakota’s job market has been solid and improving with the state’s unemployment rate falling from 2.3 percent to 2.2 percent and the state’s unemployed ranks falling by 1,600 workers. For 2019 for North Dakota, I expect that the leading industry will be machinery manufacturers (depending on Chinese trade deal). I expect the state’s 2019 lagging industry to be energy including drilling and mining. Predicted 2019 economic growth: ninth among nine regional states,” said Goss. 

Oklahoma: Oklahoma’s Business Conditions Index has now remained above the 50.0 threshold for the last 17 months. The overall index from a monthly survey of supply managers advanced to 56.4 from 55.9 in November. Components of the overall December index were new orders at 56.7, production or sales at 57.1, delivery lead time at 69.8, inventories at 48.1, and employment at 50.3. “Over the past 12 months, Oklahoma’s job market has been healthy and improving rapidly with the state’s unemployment rate falling from 3.9 percent to 2.8 percent and the state’s unemployed ranks declining by 20,000 workers. For 2019, I expect that the leading industry for Oklahoma will be metal producers. I expect the state’s 2019 lagging industry to be energy, including drillers and mining. Predicted 2019 economic growth: seventh among nine regional states,” said Goss.  

South Dakota: The December Business Conditions Index for South Dakota climbed to a regional high of 63.1 from November’s 55.6. Components of the overall index from the December survey of supply managers in the state were new orders at 62.3, production or sales at 64.4, delivery lead time at 78.7, inventories at 54.2, and employment at 56.0. “Over the past 12 months, South Dakota’s job market has been healthy and improving rapidly with the state’s unemployment rate falling from 3.3 percent to 2.8 percent and the state’s unemployed ranks declining by 2,000 workers. For 2019, I expect that the leading industry for South Dakota will be finance and banking. I expect the state’s 2019 lagging industry to be mining and drilling. Predicted 2019 economic growth: first among nine regional states,” said Goss. 

Survey results for January will be released on Feb. 1, the first business day of the month.