November survey results at a glance:
- The leading economic indicator remains below growth neutral for the fourth time in five months.
- November gains for Iowa, North Dakota and Oklahoma, but losses elsewhere.
- Economic confidence plummets for November.
- Almost one-third of supply managers expect no increase in pay for next year.
- Supply managers have raised expected wholesale price growth by for next year by two percentage points since May.
For the fourth time in the past five months, the monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, remained below growth neutral. The index continues to point to slightly negative growth for the region in the next three to six months.
Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to a weak 48.0 from October’s 46.5.
“Our survey is heavily weighted by manufacturers, and much like the national survey of supply managers, we are tracking economic weakness, particularly for nondurable goods producers. This weakness has more than offset slight gains from durable goods manufacturers and value-added service firms. Furthermore, there was a great deal of economic variation among the nine states with Iowa, North Dakota and Oklahoma outperforming the remaining states,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Employment: The region’s employment gauge moved slightly above growth neutral for November. The index increased for a second straight month to 50.5 from a much weaker 47.7 in October. Recent surveys point to job growth hovering close to zero for the nine-state region in the months ahead. “Nondurable goods producers, including food manufacturers and ethanol processors, are experiencing job losses while durable goods manufacturers are expanding their job levels, but at a slow pace. As a result of the weak job market, approximately 30 percent of supply managers expect no pay raise next year. On average, supply managers project a 1.4 percent wage gain for the next year,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, declined to 64.4 from October’s 71.5 and 66.0 in September. As stated by one supply manger, “Keep your eye on Dr. Copper. The world economy is slowing and copper is struggling to find solid ground.”
“Weaker commodity prices, such as that for oil and copper, linked to slower global growth are showing up in our survey. However, I expect the Federal Reserve’s easy money policy to continue to support elevated commodity prices even with the global economic slowdown,” said Goss.
This month supply mangers were asked how much they expect prices for products they purchase to change in the next six months. On average, a 3 percent increase is expected. This compares to a projected 2 percent increase recorded in May of this year. “Thus, supply mangers have raised their annualized projected wholesale price index from 4 percent to 6 percent,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the November business confidence index, plummeted to 43.5 from October’s 58.0. “Both the fiscal cliff and the uncertainty surrounding healthcare reform were reported by supply managers as negatively affecting their economic outlook,” said Goss.
Inventories: Regional inventory levels continued to decline. The November inventory index remained below growth neutral but did increase to 44.9 from 43.5 in October. “Supply managers have now cut inventories for five straight months. The last time this happened was in 2009 when supply managers were reducing inventories in anticipation of weaker business activity,” said Goss.
Trade: New export orders were weak for November. The new export orders index sank to 47.9 from 60.8 in October. At the same time, November imports contracted for the month with an index of 42.6 and down from 44.2 in October. “Slower Mid-America growth restrained imports while pullbacks in global growth hurt new export orders,” said Goss.
Other components: Other components of the November Business Conditions Index were new orders at 46.0, up from 43.3 in October; production or sales at 46.6, up from 43.9; and delivery lead time at 51.8, down from October’s 54.1.
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 November overall index, or leading economic indicator, for Arkansas rose to a weak 45.4 from October’s 42.3. Components of the index from the monthly survey of supply managers were new orders at 39.6, production or sales at 41.9, delivery lead time at 50.1, inventories at 50.1, and employment at 45.0. “Arkansas has lost manufacturing jobs thus far in 2012. However, the losses were in the state’s nondurable goods sector with an almost equal gain for the state’s durable goods producers. Our November survey indicates that pullbacks among nondurables continue to outweigh advances for durable goods manufacturers,” said Goss.
Iowa: Iowa’s November Business Conditions Index declined for a fifth consecutive month to 52.6 from October’s 54.2. The overall index, from a survey of supply managers in the state, has remained above growth neutral for the last 35 months. Components of the index for November were new orders at 53.5, production or sales at 45.2, delivery lead time at 55.8, employment at 56.9, and inventories at 51.4. “For 2012, Iowa has bucked the trend in the region by adding both durable and nondurable goods manufacturing jobs. Our recent surveys continue to point to growth for both manufacturing and nonmanufacturing in the state, but at a slower pacer,” said Goss.
Kansas: The Kansas Business Conditions Index for November advanced to a tepid 51.3 from 47.9 in October. Components of the index from the monthly survey of supply managers in the state were new orders at 57.8, production or sales at 49.3, delivery lead time at 53.8, employment at 51.9, and inventories at 43.6. “For 2012, Kansas has added both durable and nondurable manufacturing jobs, but at a slow pace. Gains, however, were greater for durable goods producers as food-processing pullbacks pulled the nondurable goods sector numbers lower. Higher agriculture commodity prices will likely continue to weigh on food processors as the state economy expands, but at a very slow pace,” said Goss.
Minnesota: For a fifth straight month, the Minnesota Business Conditions Index slumped below growth neutral. The index, based on a survey of supply managers in the state, climbed to 48.4 from 47.1 in October. This is the first time since the recession that the overall index has been below 50.0 for five straight months. Components of the index from the November survey were new orders at 36.9, production or sales at 40.5, delivery lead time at 63.6, inventories at 48.2, and employment at 52.8. “For 2012, Minnesota nondurable goods losses more than offset gains among durable goods manufacturers. However over the last several months we have been recording losses, albeit small, across the manufacturing sector. Businesses linked to construction are reporting improving economic conditions. Our surveys point to slightly negative economic and job growth for the state over the next three to six months,” said Goss.
Missouri: The November Missouri Business Conditions Index slipped to 47.2 from 50.0 in October. Components of the survey of supply managers for November were new orders at 41.6, production or sales at 45.8, delivery lead time at 55.5, inventories at 41.9, and employment at 51.5. “For 2012, job losses in Missouri’s nondurable goods sector more than offset increases for durable goods producers in the state. Our recent surveys of supply managers in the state show a continuation of this trend with overall job growth likely to hover slightly below zero in the next three to six months,” said Goss.
Nebraska: For the fourth time in the past five months, Nebraska’s leading economic indicator fell below growth neutral. The Business Conditions Index, from a survey of supply managers, increased to 47.3 from October’s 45.5. Components of the index for November were new orders at 47.6, production or sales at 45.5, delivery lead time at 49.2, inventories at 49.0, and employment at 45.3. “Improving economic conditions in Nebraska’s construction industry are pushing growth higher for firms with linkages to this industry. However, pullbacks in growth for both durable and nondurable goods more than offset nonmanufacturing growth. Our surveys over the past several months point to slightly negative job and economic growth for Nebraska over the next three to six months,” said Goss.
North Dakota: The leading economic indicator for North Dakota was once again a regional high. However, the Business Conditions Index slid to 58.1 from October’s 64.1. Components of the overall index for November were new orders at 59.4, production or sales at 72.8, delivery lead time at 53.5, employment at 51.4, and inventories at 53.1. “Our surveys over the past several months point to positive but somewhat slower growth for the state over the next three to six months. Housing and labor shortages are reported by supply managers as restraining more robust growth,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma fell for November, but to a solid reading. The leading economic indicator from the supply manager survey sank to 56.1 from October’s 63.3. Components of the November survey were new orders at 63.6, production or sales at 62.4, delivery lead time at 42.0, inventories at 60.5, and employment at 52.1. “Growth stemming from a very strong energy sector continues to push state economic growth higher. In addition, both durable and nondurable goods producers continue to expand at a solid pace. For example, metal manufacturing and machinery production are growing at a healthy rate in the state. Our surveys over the past several months project healthy but somewhat slower growth for the next three to six months,” said Goss.
South Dakota: For a fifth straight month, the leading economic indicator for South Dakota remained below growth neutral. However, the Business Conditions Index from a survey of supply managers did rise to 48.9 from 45.3 in October. Components of the index for November were new orders at 60.7, production or sales at 53.8, delivery lead time at 55.0, inventories at 28.8, and employment at 46.0. “For 2012, South Dakota added manufacturing jobs at a very slow, but positive pace. Our surveys over the past several months indicate that the growth rate in both manufacturing and nonmanufacturing will move to slightly negative for the next three to six months,” said Goss.
Survey results for December will be released on the first business day of the month, Jan. 2. Follow Goss on twitter at twitter.com/erniegoss For historical data and forecasts visit our website at: www2.creighton.edu/business/economicoutlook/ www.ernestgoss.com