Mid-American States

Mid-America Business Conditions Index Moves Higher:
Labor Shortages Remain an Issue

May survey results at a glance:

* For a fourth straight month, the overall index remained above growth neutral.
* For the first time since August 2015, the employment gauge climbed above growth neutral 50.0.
* Over the past two years, regional exports declined by 8.1 percent compared to a smaller 4.7 percent loss for the U.S. economy. 
* More than one-fourth of businesses reported finding and hiring qualified workers as the greatest challenge to business prospects for the rest of 2016.
* More than one-fifth of businesses expect a negative impact from a June Federal Reserve rate hike.

OMAHA, Neb. (June 1, 2016) Ė The Creighton University Mid-America Business Conditions Index, a leading economic indicator for a nine-state region stretching from Arkansas to North Dakota, increased for May after declining for two straight months.

Overall index: The May Business Conditions Index, which ranges between 0 and 100, rose to 52.1, up from Aprilís 50.1 and Marchís 50.6. This is the fourth consecutive month the reading has moved above growth neutral.

Over the past several months the regional index, much like the national reading, has indicated the manufacturing sector is experiencing anemic, but stabilizing and improving business conditions.

"The regionís manufacturing sector is expanding but at a slow pace as gains for nondurable goods producers more than offset continuing losses for regional durable goods manufacturers."

"One of the keys to the level of economic growth in the months ahead will be the interest rate position of the Federal Reserve. If the Federal Reserve telegraphs more aggressive rate hikes in the months ahead at its June meetings, the U.S. dollar is very likely to strengthen thus slowing regional manufacturing," said Ernie Goss, Ph.D., director of Creighton Universityís Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.

Employment: For the first time since August 2015, the regional employment gauge advanced above growth neutral. The index climbed to 51.4 from Aprilís 45.0. "Job gains for nondurable goods producers more than offset losses for durable goods manufacturers for the month," said Goss.

This month, supply managers were asked to identify the greatest challenge to 2016 business prospects for their company. More than one-fourth, or 26.0 percent, named difficulty in finding and hiring qualified workers as the biggest threat to business operations for the remainder of 2016. Almost one-third, or 32.9 percent, expect U.S. economic weakness to pose the biggest challenge for business operations for the rest of 2016.

Wholesale Prices: The wholesale inflation index for May was unchanged from 62.4 in April. "Prices for raw materials and supplies, as reported by regional supply managers, are rising at a pace, if matched in future months, that will push the Federal Reserve to move short-term interest rates up at a pace higher than current market expectations," said Goss.

This month, supply managers were asked to assess the impact of a June Federal Reserve rate hike on their companyís economic prospects. Approximately one in five, or 20.8 percent, expect a June rate increase to have a negative effect on company economic activity. More than half, or 52.8 percent, anticipate little, or no impact, while 4.2 percent expect a positive impact from a Fed rate increase. The remaining 22.2 were unsure of the economic fallout from an interest rate increase.

Confidence: Looking ahead six months, economic optimism, as captured by the May business confidence index, slipped to 47.7 from Aprilís 51.3. "Global economic uncertainty combined with expected higher interest rates pushed the confidence reading lower for the month," said Goss.

Inventories: The May inventory index, which tracks the change in the level of raw materials and supplies, increased to 52.9 from Aprilís growth neutral 50.0.

Trade: The new export orders fell to 52.1 from Aprilís strong 57.6. The import index for May tumbled to 50.1 from 58.0 in April. "Recent economic improvements among the regionís key trading partners assisted exports for the month. At the same time, growth in regional manufacturing pushed supply managers to maintain buying from abroad," said Goss.

Export weakness has been a significant factor restraining regional and U.S. growth since 2014. However, the negative impact has been much greater for the region. Over the past two years, regional exports declined by 8.1 percent compared to a smaller 4.7 percent loss for the U.S. economy.

Other components: Components of the May Business Conditions Index were new orders at 50.7, down from 51.3; production or sales improved to 52.9 from Aprilís 50.7; and delivery speed of raw materials and supplies dipped to 52.1 from last monthís 53.7.

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 groupís 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: Arkansasí overall index for May, or leading economic indicator, expanded to 52.7 from Aprilís 49.5. Components of the index from the monthly survey of supply managers were new orders at 50.1, production or sales at 52.3, delivery lead time at 53.0, inventories at 56.3, and employment at 52.0. "In 2015, Arkansas ranked eighth in the nine-state region with exports per manufacturing worker of $38,000. Additionally, a 19 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," said Goss.

Iowa: The May Business Conditions Index for Iowa advanced to 53.2 from Aprilís 50.1. Components of the index from the monthly survey of supply managers were new orders at 50.0, production or sales at 52.2, delivery lead time at 52.3, employment at 51.7, and inventories at 51.7. "In 2015, Iowa ranked fifth in the nine-state region with exports per manufacturing worker of $61,000. Additionally, a 6.2 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," said Goss.

Kansas: The Kansas Business Conditions Index for May increased to a weak 49.7 from 48.9 in April. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 49.4, production or sales at 51.5, delivery lead time at 49.4, employment at 49.8, and inventories at 48.6. "In 2015, Kansas ranked third in the nine-state region with exports per manufacturing worker of $66,000. Additionally, a 14.6 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," reported Goss.

Minnesota: The May Minnesota Business Conditions Index climbed to a solid 54.3 from 49.8 in April. Components of the index from the monthly survey of supply managers were new orders at 50.5, production or sales at 52.7, delivery lead time at 54.8, inventories at 60.2, and employment at 53.2. "In 2015, Minnesota ranked fourth in the nine-state region with exports per manufacturing worker of $63,000. Additionally, a 6.6 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," said Goss.

Missouri: The May Business Conditions Index for Missouri rose to a regional high of 57.0 from Aprilís 50.1. Components of the index from the survey of supply managers were new orders at 51.1, production or sales at 53.4, delivery lead time at 58.1, inventories at 67.1, and employment at 55.2. "In 2015, Missouri ranked sixth in the nine-state region with exports per manufacturing worker of $52,000. However contrary to the rest of the region and nation, Missouri experienced a 1.9 percent increase in exports over the past two years," reported Goss.

Nebraska: The May Business Conditions Index for Nebraska rose to 52.4 from Aprilís 50.2. Components of the index from the monthly survey of supply managers were new orders at 50.0, production or sales at 52.2, delivery lead time at 52.3, inventories at 55.4, and employment at 51.8. "In 2015, Nebraska ranked second in the nine-state region with exports per manufacturing worker of $67,000. Additionally, a 12 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," reported Goss.

North Dakota: North Dakotaís leading economic indicator for May remained below growth neutral 50.0. The Business Conditions Index for the month fell to 40.9, a regional low, from 47.2, also a regional low. Components of the overall index from the monthly survey of supply managers were new orders at 47.2, production or sales at 49.3, delivery lead time at 41.2, employment at 40.1, and inventories at 26.1. "In 2015, North Dakota ranked first in the nine-state region with exports per manufacturing worker of $151,000. Additionally, a 12.6 percent decline in exports over the past two years contributed to the stateís recent economic pullback," said Goss.

Oklahoma: After 12 straight months with an overall index below growth neutral, Oklahomaís Business Conditions Index rebounded for May to 51.4. The index from a monthly survey of supply managers climbed to 51.4 from 49.4 in April. Components of the May survey of supply managers were new orders at 49.8, production or sales at 52.0, delivery lead time at 51.3, inventories at 52.9, and employment at 51.1. "In 2015, Oklahoma ranked seventh in the nine-state region with exports per manufacturing worker of $38,000. Additionally, a 24.0 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," said Goss.

South Dakota: The Business Conditions Index for South Dakota advanced to 53.8 from 51.6 in April. The index has moved above growth neutral for five straight months. Components of the overall index for May were new orders at 50.3, production or sales at 52.6, delivery lead time at 54.4, inventories at 59.0, and employment at 52.8. "In 2015, South Dakota ranked ninth in the nine-state region with exports per manufacturing worker of $33,000. Additionally, a 13.4 percent decline in exports over the past two years contributed to the stateís recent slower economic growth," said Goss.

Survey results for June will be released on the first business day of next month, July 1.