July survey results at a glance:
- Regional index declines for fourth straight month, but remains above growth neutral.
- The impact of the federal spending sequestration is rising, but remains modest.
- Inflationary pressures at the wholesale level decline for the fifth straight month.
- Nondurable goods manufacturers report pullbacks for the month.
- Export orders index moves lower for July. For Immediate Release: Aug. 1, 2013
The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, declined for a fourth straight month. The index continues to point to positive, but slower economic growth for the region in the next three to six months.
Overall index: The Business Conditions Index, which ranges between 0 and 100, declined in July to a still solid 53.5 from June’s 55.6. “Our regional gauge, much like national measures, indicates that the economy will likely continue to expand and add jobs, but at a slow pace. Companies with ties to the U.S. farm economy and to international markets are reporting much softer business conditions. This will show up in the broader regional economy in the next three to six months,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Employment: After moving below growth neutral for January, the region’s employment gauge has remained above 50.0 for the past six months. The July reading climbed to 55.3 from 53.7 in June. “Nondurable goods manufacturers, especially those tied to agriculture and international markets are cutting employment in the region. On the other hand, durable goods producers and value-added nonmanufacturing firms continue to expand employment. Job growth for the second half of 2013 will be down from the same period for 2012, when it was a solid, annualized 1.7 percent,” said Goss.
This month supply managers were asked to report the starting salary for new supply manager hires with a college degree and no experience. On average a starting salary of $46,000 was reported. The same new hire with 5 years of experience would receive a starting salary of $60,000 according to the supply managers.
Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, sank for a fifth straight month to 58.0 from 58.4 in June. “Wholesale inflationary pressures for the region have moved consistently lower. Weakness in the global economy and the upturn in the value of the dollar have restrained inflationary pressures at the wholesale level. This trend provides the Federal Reserve (Fed) with flexibility in terms of when they begin tapering its bond-buying program (QE3). Even so, I expect the Fed to begin reducing its $85 billion per month bond-buying program at its Sept. 17-18 meetings,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the July business confidence index, advanced to 56.9 from June’s 51.1. “The rapidly improving housing sector and the U.S. equity (stock) market boosted supply managers’ economic outlook for the month,” said Goss.
The federal spending sequestration is having very little impact on the outlook.
“The last five months, we have asked supply managers how the federal spending sequestration was affecting their company. In the July survey, approximately 67.7 percent of supply managers indicated that the cuts have had no impact on their company to date. This is down from 70.8 percent for June. Approximately 31.3 percent in July reported only modest impacts from sequestration. Only 1 percent of businesses reported significant impacts. Thus, impacts are rising but are still modest,” said Goss.
Inventories: Regional inventories continue to grow but at a slow pace as the July inventory index rose to 52.7 from 51.6 in June. “In anticipation of slight positive sales growth, companies in our survey have now increased inventory levels for eight straight months. This inventory accumulation will contribute to regional growth in the months ahead. But declining readings are another indicator of positive, but slowing economic growth for the region,” said Goss.
Trade: New export orders reading is trending downward. The new export orders index dipped to 50.0 from 52.9 in June which was well down from May’s 55.9. The import index expanded to 53.6 from June’s 52.9. “Economic pullbacks and slowdowns in Asia and Europe along with increases in the value of the U.S. dollar are having clear negative impacts on sales abroad. At the same time, continued slow but positive growth for regional firms boosted imports slightly for the month,” said Goss.
Other components: Other components of the July Business Conditions Index were new orders at 52.2, down from 57.0 in June; production or sales at 54.2, down from last month’s 60.3; and delivery lead time at 53.3, down from 55.4 in June. 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 for Arkansas expanded slightly to 52.9 from 52.6 in June. Components of the index from the survey of supply managers were new orders at 30.9, production or sales at 47.4, delivery lead time at 57.7, inventories at 58.3, and employment at 60.4. “Arkansas’s labor market has been the weakest in the region over the past year and the only state in the region to experience a decline in the number of workers in the labor force (the labor force is the sum of employed plus unemployed). Nondurable manufacturing firms reported job cuts while durable goods producers and nonmanufacturing firms in the state added jobs,” said Goss.
Iowa: The Business Conditions Index for Iowa declined for a second straight month. The overall index for July slipped to a very strong and regional high of 67.4 from June’s 69.3. Components of the index for July were new orders at 72.9, production or sales at 71.4, delivery lead time at 59.2, employment at 67.1, and inventories at 66.2. “Growth for the first half of 2013 is well above that for the same period in 2012 with Iowa’s unemployment rate declining by seven tenths of one percentage point, which was more than any other state in the region. Durable and nondurable manufacturers are reporting very healthy expansions while nonmanufacturing firms detail positive growth. Despite somewhat weaker growth for businesses linked to agriculture, the Iowa economy will expand at a solid pace in the next three to six months,” said Goss.
Kansas: The Kansas Business Conditions Index for July weakened slightly to 57.3 from 58.6 in July. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 76.8, production or sales at 65.0, delivery lead time at 43.8, employment at 61.2, and inventories at 39.6. “Kansas food processing firms are experiencing healthy growth in sales and employment. Other nondurable goods producers and durable goods manufacturing firms, except for transportation-equipment manufacturers, reported healthy expansions for July. Slower global economic growth is having a negative impact on firms selling aboard,” said Goss.
Minnesota: For an eighth straight month, Minnesota’s Business Conditions Index remained above growth neutral. The index from a monthly survey of supply managers in the state fell to 54.0 from June’s 56.2. Components of the index from the July survey were new orders at 50.9, production or sales at 54.6, delivery lead time at 55.7, inventories at 56.0, and employment at 52.8. “Food processors and other non-durable goods producers reported weaker economic conditions for the month. Expansions among durable goods firms selling domestically more than offset softer orders and sales for heavy manufacturing firms selling abroad. As a result of the improving state economy, the Minnesota unemployment rate has declined by one-half of one percentage point over the past year even as the labor force grew by more than 20,000,” said Goss.
Missouri: The July Business Conditions Index for Missouri rose slightly to 55.7 from 54.7 in June. Components of the survey of supply managers in the state were new orders at 54.4, production or sales at 60.2, delivery lead time at 51.9, inventories at 53.3, and employment at 58.8. “Durable goods manufacturers, as a result of healthy sales and new orders, are adding employees and increasing the average hours worked per week of current employees. Nondurable goods producers, including food processing, are experiencing slight pullbacks in economic activity,” said Goss.
Nebraska: Nebraska had the only overall index to move below growth neutral. The index, sank to 49.1 from June’s 51.1. Components of the index for July were new orders at 44.7, production or sales at 47.5, delivery lead time at 51.2, inventories at 50.6, and employment at 51.5. “I think this decline will be temporary. I expect the index to move higher in the months ahead. However, growth for nondurable goods producers, durable goods manufacturers and nonmanufacturing will be weaker for the second half of 2013 in comparison to the same period for 2012,” said Goss.
North Dakota: North Dakota’s leading economic indicator sank for July. The overall index, declined to 57.5 from 61.0 in June. Components of the overall index for July were new orders at 49.4, production or sales at 52.8, delivery lead time at 67.7, employment at 59.4, and inventories at 58.0. “Even with the lower July reading, the state’s economy continues to hit on all cylinders with durable and nondurable goods manufacturers experiencing healthy growth. While growth for the next three to six months will be healthy, it will be down from the same period for 2012,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma declined, but remained above growth neutral for July. The leading economic indicator from the monthly survey of supply managers tumbled to 52.3 from June’s 59.6. Components of the July survey of supply managers were new orders at 57.1, production or sales at 45.4, delivery lead time at 64.2, inventories at 55.3, and employment at 39.6. “A pullback among nondurable goods producers including food processors combined with cutbacks for mining firms in the state were responsible for July’s weaker reading. However, durable goods including metal manufacturers and machinery producers, continue to report healthy growth. Economic growth for the rest of 2013 will be slower than for the same period of 2012 when employment expanded at an annual rate of 1.4 percent,” said Goss.
South Dakota: For an eighth straight month, South Dakota’s leading economic indicator rose above growth neutral 50.0. The overall index climbed to a strong 64.8 from 62.9 in June. Components of the index for July were new orders at 78.9, production or sales at 74.1, delivery lead time at 60.8, inventories at 51.0, and employment at 59.1. “Manufacturers in the state continue to add to their payrolls and to expand the average hourly work week. Growth for the second half of 2013 will be higher than for the same period in 2012, when the state experienced annualized job growth below 1 percent,” said Goss.
Survey results for August will be released on the first business day of next month, Sept. 3.
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