Mid-American States

Business Conditions Weaken in July: Hiring and Wage Growth Remain Frail

July survey results at a glance:

* Leading economic indicator slumps for the month, but with solid gains for Minnesota and South Dakota. 
* More than one-fourth of businesses expect negative impacts from a September Federal Reserve rate hike.
* Hiring remains weak with job gains for Arkansas, Iowa, Minnesota, Missouri and South Dakota offset by job losses for Kansas, Nebraska, North Dakota, and Oklahoma.
* Wholesale inflation gauge falls.   
* Average weekly wages for region flat from same period in 2014.

OMAHA, Neb. (Aug. 3, 2015)  – The Creighton University Mid-America Business Conditions Index for July, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, slumped for the month. Indices over the past several months have pointed to slow to no economic growth over the next three to six months for the region.             

Overall index: The July Business Conditions Index, which ranges between 0 and 100, declined to 50.6 from June’s 53.0. The regional index, much like the national reading, is pointing to weak growth through the third quarter of 2015. 

“Durable and nondurable goods manufacturers, as well as value-added service industries in the region, are experiencing very little growth. Businesses tied to agriculture and energy continue to report pullbacks in economic activity and this is spilling over into the broader regional economy.   Firms in Minnesota and South Dakota are growing at a pace significantly above that for the region,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business. 

Employment: The regional employment gauge improved for the month but remains at a level pointing to slow to no new hiring in the months ahead. The job gauge advanced to a weak 50.0 from June’s 49.1. “Industries and areas dependent on agriculture and energy are experiencing cuts. For example, metal producers and agricultural equipment manufacturers are facing job losses,” said Goss.

 In terms of wage growth, recently released government data show flat average weekly wages for the first half of 2015 compared to the same period in 2014 for the region.  Gains in average weekly wages for Iowa, Kansas, Nebraska, and South Dakota were offset by losses for Arkansas, Minnesota, Missouri, North Dakota and Oklahoma.

This month, supply managers were asked how a September 2015 Federal Reserve rate hike would affect their firm. “More than one-fourth, or 26 percent, expect negative impacts from a rate increase, 5 percent anticipate positive effects, while the remaining 69 percent expect little or no affects from an interest rate hike in September,” said Goss.    

One supply manager reported he expected a hike in interest rates would slow car sales and production down a bit.

Wholesale Prices: The wholesale inflation index for July fell to 57.6 from June’s 64.9 and May’s 69.1. “As regional growth has slowed so have inflationary pressures at the wholesale level.  Agriculture and energy commodity price declines are diminishing inflationary pressures well below the Federal Reserve target,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the July business confidence index, plummeted to 52.4 from June’s 59.9. “Sinking agriculture and energy commodity prices pushed supply managers’ expectations of future economic conditions lower for the month,” said Goss. 

Inventories: The inventory index, which tracks the change in the level of raw materials and supplies, jumped to 55.1 from 54.3 in June.      

Trade: The new export orders index fell to 47.4 from 51.3 in June. The import index for July slipped to 54.7 from June’s 54.8. “Slowing global economic growth and the rising value of the U.S. dollar reduced new export orders. On the other hand, the rising value of the U.S. dollar, which makes foreign goods more competitively priced in the U.S, boosted regional imports,” said Goss.

Other components: Other components of the July Business Conditions Index were new orders at 48.3, down from 54.4 in June; production or sales sank to 47.4 from June’s 54.5; and delivery speed of raw materials and supplies dipped to 52.4 from last month’s 52.6.    

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 by the National Institute for Supply Management, formerly the Purchasing Management Association, since 1931.

Arkansas: The July overall index, or leading economic indicator for Arkansas, climbed to 52.4 from June’s 50.4. Components of the index from the monthly survey of supply managers were new orders at 50.0, production or sales at 49.1, delivery lead time at 54.3, inventories at 57.0, and employment at 51.7. “Despite the increase in the overall index for July, I expect job gains to continue to fall, but remain slightly positive in the months ahead. Durable and nondurable producers in Arkansas report soft, but positive growth in business activity for the month,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Arkansas show a 2.6 percent decline in average weekly wages, but a 2.0 percent gain in jobs.

Iowa: Iowa’s July Business Conditions Index declined to 51.8 from 52.5 in June. Components of the index were new orders at 49.5, production or sales at 48.5, delivery lead time at 53.7, employment at 51.1, and inventories at 56.4. “As in previous months, growth among nondurable manufacturers in Iowa, including food processors, more than offset weaker conditions among durable manufacturers. Metal producers and agricultural equipment manufacturers in the state continue to suffer pullbacks in business activity,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Iowa show a 1.9 percent increase in average weekly wages, and a 1.5 percent gain in jobs.
 
Kansas: The Kansas Business Conditions Index for July slipped to growth neutral 50.0 from June’s 50.1. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 47.7, production or sales at 46.8, delivery lead time at 51.8, employment at 49.4, and inventories at 54.4. “Growth for both durable and nondurable goods manufacturers in the state continue to move lower. I expect overall economic activity in the state to move sideways in the months ahead,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Kansas show a 2.0 percent increase in average weekly wages, and a 0.8 percent gain in jobs.
 
Minnesota: The July Minnesota Business Conditions Index rose to 54.8 from 54.3 in June. Components of the index from the monthly survey of supply managers were new orders at 52.8, production or sales at 50.8, delivery lead time at 56.2, inventories at 59.0, and employment at 54.5. “Minnesota durable and nondurable goods manufacturers are expanding jobs and economic activity. For example, food processors and businesses tied to vehicle manufacturing are experiencing very strong growth,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Minnesota show a 0.6 percent decline in average weekly wages, but a 1.3 percent gain in jobs.

Missouri: The July Business Conditions Index for Missouri sank to 49.4 from June’s 50.1. Components of the index from the survey of supply managers were new orders at 44.8, production or sales at 46.3, delivery lead time at 51.1, inventories at 53.7, and employment at 51.2.  “As in June, durable goods manufacturers, including vehicle producers and machinery manufacturers, reported very strong growth for the month. However, this growth was offset by weaker business conditions among nondurable goods manufacturers, such as food processors in the state,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Missouri show a 1.2 percent decline in average weekly wages, and a 0.8 percent gain in jobs.

Nebraska: After advancing above growth neutral for 19 straight months, Nebraska’s Business Conditions Index fell below the threshold for July. The index, a leading economic indicator from a monthly survey of supply managers in the state slumped to 48.6 from June’s 51.3. Components of the index were new orders at 46.4, production or sales at 45.6, delivery lead time at 50.4, inventories at 52.9, and employment at 48.0. “Durable goods manufacturing, especially those tied to agriculture cut jobs and experienced pullbacks in economic activity for the month. Nondurable goods producers are also reporting weaker economic activity,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Nebraska show a 2.2 percent increase in average weekly wages, and a 0.4 percent gain in jobs.

North Dakota: North Dakota’s leading economic indicator for July remained below growth neutral 50.0. The Business Conditions Index fell to a regional low of 43.9 from June’s 44.0, also a regional low. Components of the overall index from the monthly survey of supply managers were new orders at 41.9, production or sales at 41.1, delivery lead time at 45.5, employment at 43.4, and inventories at 47.8. “Weakness in businesses tied to agriculture and energy is now spilling over into the overall state economy. Based on our survey results over the past several months, North Dakota’s economy will continue to lose jobs and economic activity,” reported Goss.  From this time last year, U.S. Bureau of Labor Statistics data for North Dakota show a 0.3 percent decline in average weekly wages, and a 0.5 percent gain in jobs.

Oklahoma: The July Business Conditions Index for Oklahoma slumped below growth neutral for a third straight month. However, the index from a monthly survey of supply managers in the state, rose to a weak 48.3 from 46.9 in June. Components of the July survey of supply managers were new orders at 46.1, production or sales at 45.3, delivery lead time at 50.0, inventories at 52.6, and employment at 47.7. “Weakness in businesses tied to energy is now spilling over into the broader state economy. Both durable and nondurable goods manufacturers are shedding jobs.  Based on our survey results over the past several months, these losses will extend into the fourth quarter of this year,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for Oklahoma show a 1.1 percent decline in average weekly wages, and a 0.6 percent gain in jobs.

South Dakota: After moving below growth neutral in November of 2012, South Dakota’s leading economic indicator has been above growth neutral 50.0 each month since. The Business Conditions Index, from a monthly survey of supply managers, declined to a regional high of 55.8 from June’s 56.2, also a regional high. Components of the overall index for July were new orders at 53.2, production or sales at 52.2, delivery lead time at 57.7, inventories at 60.7, and employment at 55.0. “As in previous months, both durable and nondurable goods producers and service providers are expanding at a solid pace. Financial services firms are also expanding in the state. Our surveys indicate that healthy growth in South Dakota will continue through the fourth quarter of this year,” said Goss. From this time last year, U.S. Bureau of Labor Statistics data for South Dakota show a 2.1 percent increase in average weekly wages, and a 2.1 percent gain in jobs.

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