Price Pressures Plummet
April survey results at a glance:
- Leading economic indicator stays in very healthy range.
- Exports remain important contributor to growth.
- Inflation cools significantly for the month.
- Input prices expected to expand by a low 2.1 percent for rest of 2012.
- More than one-third indicated that regulatory burdens were biggest obstacle to growth.
The monthly Business Conditions Index for the nine-state, Mid-America region indicates growing strength in the regional economy. The index, a leading economic indicator from a monthly survey of supply managers, has increased for five straight months.
Overall index: The index, which ranges between 0 and 100, climbed to 60.0 from 58.6 in March and 58.4 in February. “Despite higher energy prices, manufacturers, especially those tied to international markets and agriculture expanded briskly for the month. Heavy manufacturing continues to be source of growth for the region with export oriented manufacturers leading the way,” said Ernie Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
This month supply managers were asked what federal action would most positively affect their company’s growth.
“More than one-third, 36 percent, reported that a reduction in regulatory burdens would be the most beneficial to expanding sales and income. Another 26 indicated that a reduction in federal spending would be most supportive to growth for their industry while 15 percent said a corporate tax reduction would have the most positive impact on growth. No other factor garnered above single digit support,” said Goss.
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.
Employment: For a fourth straight month, the employment index climbed above growth neutral. The hiring gauge increased to a strong 62.1 from March’s 58.5. “Employment growth in the region is accelerating. I expect the region to report the strongest employment growth since the recession ended in 2009 in the months. This is in stark contrast to most other regional and national surveys that point to slower growth ahead,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, plummeted to 67.8 from March’s 76.5. “Even as prices for certain inputs continue to grow at an unsustainable pace, this pullback in overall input prices is very good news.
This month, we asked supply managers to project price hikes for the rest of 2012 for inputs that they buy. Supply managers anticipate a very modest 2.1 percent increase for the rest of the year. Approximately 38 percent of supply managers expect no increase or a price decline for inputs for the remainder of 2012. This downturn is certainly surprising to me potentially stemming from a national and global economic slowdown,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the April business confidence index, rose to a healthy 64.5 from March’s 62.2. “A dip in fuel prices and expanding regional growth more than offset concerns surrounding the nation’s employment conditions,” said Goss.
Inventories: The April inventory index declined to 56.7 from 58.9 in March though it was up from February’s 54.2. “In anticipation of production increases in the months ahead, supply managers have been growing their inventories at a steady pace in the past several months. I expect this to continue to be a source of growth for the next three to six months,” said Goss.
Trade: April’s export numbers for the Mid-America region expanded to a solid 57.0 from 56.4 in March and 55.3 in February. At the same time, April imports slipped to 56.7 from March’s 57.4. “Exports continue to be one of the most important factors driving growth in the regional economy higher. Short of trading skirmishes or a strong dollar, I expect exports to remain healthy for most areas of the nine-state region,” said Goss.
Other components: Other components of the April Business Conditions Index were new orders at 64.0, up from 60.8 in March; production or sales at 61.3, up from 60.4; and delivery at 56.1, up from 54.5 in March.
Arkansas: The overall index for Arkansas inched higher to 67.9 from March’s 67.8. Components of the index from the monthly survey of supply managers were new orders at 70.1, production or sales at 69.6, delivery lead time at 60.6, inventories at 66.0, and employment at 73.3. “Even without a rebound in construction and pullbacks among nondurable goods manufacturers, the state’s economy continues to expand. Job growth among durable goods manufacturing has been restrained by increases in production from current employees and rising hours worked,” said Goss.
Iowa: For the 28th straight month, Iowa’s Business Conditions Index declined but remained above growth neutral. The index slipped to a strong 66.2 from March’s 67.5. Components of the index for April were new orders at 69.0, production or sales at 65.7, delivery lead time at 55.7, employment at 70.9, and inventories at 69.8. “Both durable and nondurable goods manufacturers in Iowa are adding jobs at a healthy pace. Manufacturers tied to agriculture and dependent on sales abroad are experiencing especially strong growth. As a result of this solid expansion, I expect Iowa’s unemployment rate to move below 5 percent for the first time since 2008 by the middle of 2012,” said Goss.
Kansas: The Kansas Business Conditions Index for April climbed to 56.4 from March’s 55.3. Components of the index from April’s survey of supply managers in the state were new orders at 53.3, production or sales at 63.1, delivery lead time at 53.5, employment at 57.8, and inventories at 54.3. “Both nondurable and durable goods producers are benefiting from international sales. However, manufacturing in aerospace and food processing is experiencing flat to slightly negative growth in the state. In Kansas, we are seeing firms rely on new hiring rather than expanding the hours-worked for their current employees,” said Goss.
Minnesota: The April Minnesota Business Conditions Index was above growth neutral marking the 32nd consecutive month that the state’s leading economic indicator was above growth neutral. The index, based on a survey of supply managers in the state, climbed to 61.0 from March’s 56.7. Components of the index from the April were new orders at 71.1, production or sales at 69.5, delivery lead time at 55.2, inventories at 49.1, and employment at 60.2. “As in past months, durable goods manufacturers, such as metal producers, are growing briskly even as nondurable producers detail no gains. In addition to upturns in hiring, manufacturers and non-manufacturers are increasing the hours that current employees are working,” said Goss.
Missouri: The April Missouri Business Conditions Index climbed above growth neutral for the month. The index, a leading economic indicator from a survey of supply managers, increased to a healthy 60.2 from 58.3 in March. Components of April’s Business Conditions Index were new orders at 64.3, production or sales at 60.9, delivery lead time at 55.9, inventories at 59.2, and employment at 60.8. “The state’s construction sector continues to weigh on the Missouri economy. On the other hand, we are tracking solid upturns in Missouri’s durable manufacturing sector such as metal producers. Nondurable producers are experiencing slight pullbacks in business activity with food processors reporting slow to no growth,” said Goss.
Nebraska: The April Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 18th consecutive month. The index advanced slightly to 53.5 from March’s 53.0. Components of the index were new orders at 52.4, production or sales at 53.9, delivery lead time at 54.9, inventories at 52.0, and employment at 54.3. “Firms in Nebraska are reporting much slower but positive growth with less new hiring and little change in the average hourly work week. On the other hand, durable goods manufacturers, such as metal producers, continue to expand in the state. Based on our survey results, I expect Nebraska’s growth to slow but remain positive in the months ahead,” said Goss.
North Dakota: The leading economic indicator for North Dakota slipped to a very healthy reading for April. The Business Conditions Index from a survey of supply managers in the state slipped to 62.7 from March’s 63.0. Components of the overall index for April were new orders at 61.3, production or sales at 58.6, delivery lead time at 62.8, employment at 74.2, and inventories at 56.8. “The gap between North Dakota’s growth and that of the region and the nation continues to widen. Our surveys over the past several months indicate no change in that pattern as firms connected to agriculture and energy grow at very strong rates. Firms are not only adding to their payrolls, they are also increasing the hours worked for their current employees. I expect the average work week among manufacturers in North Dakota to exceed that of every state in the region and nation,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma rose to a very healthy 62.6 from 58.6 in March. Components of the leading economic indicator for April were new orders at 59.3, production or sales at 53.8, delivery lead time at 83.4, inventories at 54.0, and employment at 63.0. “Second only to North Dakota, Oklahoma’s growth continues uninterrupted and very positive. Our survey indicates no change to that growth in the months ahead. Despite healthy economic activity, firms in the state are not adding to the hourly work-week of current employees. Instead, firms are adding new workers. Durable goods producers especially those linked to energy and international markets, such as metal manufacturers, are experiencing solid growth,” said Goss.
South Dakota: The leading economic indicator for South Dakota rose to a healthy level for April. The Business Conditions Index from a survey of supply managers in the state dipped slightly to a still strong 63.2 from 64.4 in March. Components of the index for April were new orders at 66.2, production or sales at 72.2, delivery lead time at 47.6, inventories at 68.4, and employment at 61.8. “Manufacturers in the state continue to expand employment and to increase the hours worked for current employees. Computer and electronic manufacturers in South Dakota are expanding via national and international sales,” said Goss.
Survey results for May will be released June 1.
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