Inflationary Pressures Down Again
November survey results at a glance:
- Leading economic indicator moves above growth neutral with lower inflationary pressures.
- Businesses reported slight job increases for November.
- Holiday buying is expected to expand by 3 to 4 percent from last year.
- Businesses expect wage rates to expand by only 2.2 percent over the next year.
After declining in October to its lowest level since 2012, the monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, increased for November.
Overall index: The Business Conditions Index, which ranges between 0 and 100, rose to a tepid 51.2 from October’s growth neutral 50.0. “Weakness among nondurable goods manufacturers in the region were more than offset by strength among durable goods producers. The region’s heavy manufacturers reported solid upturns in new export orders for November,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Employment: After falling below growth neutral for October, the region’s employment gauge expanded above the threshold for November. The index jumped to 51.2 from 48.2 in October. “After taking a hit from the government shutdown and the uncertainty surrounding raising the nation’s debt ceiling, firms in the region increased hiring slightly for the month. The lack of significant new hiring over the past several months will restrain growth in 2013 holiday buying,” said Goss.
“As a result of the weak job market, respondents expect a very modest 2.2 percent pay increase for next year or only slightly above the rate of inflation,” reported Goss.
Wholesale Prices: For a second straight month, the prices-paid index, which tracks the cost of purchased raw materials and supplies, declined. The wholesale inflation gauge dipped to 61.6 from October’s 63.1 and September’s 64.8.
"Inflationary pressures at the wholesale level continue to decline. This is likely to result in consumer prices growing at an annual pace significantly below the Federal Reserve’s target of approximately 2 percent for the next several months. While the inflation gauge remains in a range indicating only modest inflationary pressures, the Federal Reserve’s $85 billion monthly bond buying stimulus program continues to boost asset prices such as housing and stocks at rates that are not sustainable,” said Goss.
This month supply managers were asked how much they expected prices of products and services that they purchase to change in the next six months. More than one-fourth, or 27.5 percent, expect no change and maybe even a price decline.
“There is clearly more downward pressure on wholesale prices than the Federal Reserve is comfortable with,” said Goss.
Confidence: Looking six months ahead, economic optimism, as captured by the November business confidence index, expanded to 57.2 from October’s 56.0. “The temporary resolution of the debt ceiling and the re-opening of the federal government had a positive impact on supply managers’ outlook,” said Goss.
For each of the last nine months, supply managers were asked how the federal spending sequestration was affecting their company. “As in past months, approximately two-thirds of supply managers indicated the cuts have had no impact to date. The remaining one-third of supply managers indicated that sequestration was having a modest impact. According to surveys over the last nine months, the impacts have been modest and have remained subdued,” said Goss.
Inventories: The inventory index tracking the level of raw materials and supplies sank to 48.1 from October’s 50.0. “Even with November’s decline, inventory levels are up from this time last year. This is another signal that supply managers are more upbeat about expanding sales for their companies in the months ahead,” said Goss.
“Based on inventory levels, confidence, hiring and overall business activity from our survey, I expect the holiday buying season to be up from last year, but it will not be a robust holiday buying season, with sales up between 3 and 4 percent from last year,” said Goss.
Trade: Trade numbers strengthened markedly for the month. The new export orders index jumped to 56.4 from 44.4 in October. The import index expanded to 53.5 from October’s 48.5. “One of the important factors slowing growth in the regional economy has been export orders. It is encouraging to record a sharp upturn in the reading. Furthermore, the November expansion pushed regional firms to step-up their buying from abroad. We will have to see several months of improvements like these before I am confident that trade numbers are solidly on the upswing,” said Goss.
Other components: Other components of the November Business Conditions Index were new orders at 57.2, up from 47.0 in October; production or sales at 53.3, up from October’s 51.2; and delivery lead time at 50.7, down from last month’s 53.0.
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 for Arkansas expanded to 51.1 from 45.6 in October. Components of the index from the survey of supply managers were new orders at 53.5, production or sales at 47.0, delivery lead time at 50.5, inventories at 56.4, and employment at 48.1. “Nondurable goods manufacturers in Arkansas continue to report job losses even as durable goods producers indicate expanding employment levels. Construction activity has yet to return to pre-recession levels in the state. Even with recent job gains the state’s nonfarm employment level is down by 19,000 from its maximum level achieved in February 2008,” said Goss.
Iowa: After declining for five straight months, the Iowa Business Conditions Index rose for November to a healthy 59.2 from October’s 58.5. Components of the index for November were new orders at 57.1, production or sales at 63.9, delivery lead time at 56.3, employment at 57.7, and inventories at 61.1. “Government data show that after peaking in July of this year, Iowa has lost nonfarm jobs albeit at a slow pace. Even with these overall losses, our surveys indicate that Iowa’s manufacturing sector, both durable and nondurable, remains the strongest in the nine-state region. I expect the state to continue to add jobs at a solid pace in the months ahead,” said Goss.
Kansas: The Kansas Business Conditions Index for November fell to 51.5 from October’s 56.3. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 57.1, production or sales at 49.6, delivery lead time at 48.7, employment at 53.9, and inventories at 48.3. “Service providers in Kansas cut back on hours worked by their current employees. Except for food processors, nondurable goods manufacturers experienced upturns in overall economic activity. Durable goods producers continue to expand but at a slower pace,” said Goss.
Minnesota: For 12 straight months, Minnesota’s Business Conditions Index has moved above growth neutral. The index from a monthly survey of supply managers in the state advanced to a solid 55.7 from 55.2 in October. Components of the index from the November survey were new orders at 64.9, production or sales at 55.6, delivery lead time at 56.8, inventories at 47.7, and employment at 53.7. “Stronger growth among durable goods manufacturers offset somewhat weaker conditions for nondurable goods producers, including food processors. Construction activity continues to expand although it remains well below pre-recession levels,” said Goss.
Missouri: The November Business Conditions Index for Missouri declined to 51.9 from October’s 54.3. Components of the survey of supply managers in the state were new orders at 56.5, production or sales at 56.4, delivery lead time at 49.5, inventories at 49.8, and employment at 47.6. “Even with recent gains, employment levels at construction firms in the state remain 35,000 below pre-recession levels. Durable and nondurable goods manufacturers are adding jobs at a healthy pace. Motor vehicle manufacturers and metal producers in the state are experiencing upturns in business activity,” said Goss.
Nebraska: For a second straight month, Nebraska’s overall, or business conditions index, remained below growth neutral. The index, a leading economic indicator from a survey of supply managers in the state advanced to 48.3 from 47.0 in October. Components of the index for November were new orders at 45.9, production or sales at 48.4, delivery lead time at 50.3, inventories at 46.3, and employment at 50.8. “Transportation firms, trucking and rail, continue to benefit from expanding economic conditions among Nebraska’s manufacturers. On the other hand, construction activity has softened,” said Goss.
North Dakota: North Dakota’s leading economic indicator decreased, but remained above growth neutral for November. The overall index from a survey of supply managers in the state sank to 55.3 from 59.0 in October. Components of the overall index for November were new orders at 51.5, production or sales at 47.7, delivery lead time at 73.6, employment at 61.3, and inventories at 42.7. "Durable goods manufacturers and construction firms linked to North Dakota’s large energy sector continue to experience very healthy economic activity,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma was up but remained below growth neutral for November to 49.3 from October’s 48.6. Components of the November survey of supply managers in the state were new orders at 50.8, production or sales at 48.0, delivery lead time at 48.8, inventories at 49.4, and employment at 49.3. “Manufacturing firms tied to the state’s energy sector experienced pullbacks in economic activity for the month. Construction activity also slowed for November,” said Goss.
South Dakota: After moving below growth neutral in November of last year, South Dakota’s leading economic indicator from a survey of supply managers has been above growth neutral 50.0 each month since. The overall index, termed the Business Conditions Index, slipped to 52.3 from 54.7 in October. Components of the index for November were new orders at 60.7, production or sales at 58.4, delivery lead time at 44.5, inventories at 43.9, and employment at 54.1. “Manufacturers in South Dakota experienced solid improvements for November. Nonfarm employment in the state is at a record level and well above pre-recession levels," said Goss.
Survey results for December will be released on the first business day of next month, Jan. 2. Follow Goss on twitter at:
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