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Mid-America Economy Lackluster for January

January survey results at a glance:

  • For only the second time in the past five months, the leading economic indicator climbed above growth neutral.
  • Declines in new export orders helped push the employment gauge into negative territory.
  • Supply managers anticipate a 1.6 percent raise in wage rates for 2013.
  • Supply managers expect wholesale prices to expand by 3 percent in the next six months or 6 percent on an annualized basis.

For only the second time in the past five months, the monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, rose above growth neutral. The index continues to point to slow growth for the region in the next three to six months, but still no recession.

Overall index: The Business Conditions Index, which ranges between 0 and 100, increased to a tepid 53.2 for January, up from 49.5 in December.

“Much like the national economy, the regional economy’s manufacturing sector moved sideways to slightly down with firms dependent on sales abroad reporting pullbacks in orders. On the other hand, growth among durable-goods producers, especially manufacturers linked to automobile production, was a definite plus for January,” 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 once again fell below growth neutral. However, the index inched higher to 48.9 for January from December’s 48.0. “Recent surveys point to overall job growth hovering close to zero with slight negative manufacturing job growth. This lack of job growth translated into supply managers expecting only a 1.6 percent wage increase for 2013,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, advanced to 71.8 from December’s 63.5 and November’s 64.4.

“Never in the Federal Reserve’s 100 year existence has it been this aggressive in terms of ultra low interest rates and in expanding the nation’s money supply. However, this policy has yet to ignite inflationary pressures, or significant job growth. Even so, our wholesale inflation gauge points to rising inflationary pressures. The bond yields on U.S. Treasury bonds has begun to rise as investors require higher interest rates to cover an increase in expected inflation,” said Goss.

This month supply managers were asked how much they expected prices for inputs they purchase to increase in the next six months. On average an annualized six percent growth in wholesale prices is expected. This increase is only up slightly from July of 2012 when we asked this same question.

Confidence: Looking ahead six months, economic optimism, as captured by the January business confidence index, rose to 56.6 from 50.0 in December. “Improvements in the housing and automobile sectors along with avoiding falling off the ‘fiscal cliff’ pushed the economic outlook higher,” said Goss.

Inventories: Regional inventory levels increased for the month. The January inventory index climbed to 55.0 from 51.5 in December. “After reducing inventories for five straight months, supply managers have now expanded inventory levels for December and January. This has been an important factor pushing the overall index higher and is consistent with rising business confidence,” said Goss.

Trade: New export orders remain very weak for the region. The new export orders index slumped to 45.3 from December’s tepid 50.0. Once again, imports were soft with a reading of 50.7 for January up from 48.7 in December. “Global economic weakness pushed new export orders lower while the lack of any significant regional growth restrained imports,” said Goss.

Other components: Other components of the January Business Conditions Index were new orders at 52.3, up from 46.4 in December; production or sales at 53.9, up from December’s 48.0; and delivery lead time at 56.1, up from 53.5 in December.

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 January overall index for Arkansas rose to 52.3 from December’s 47.7. Components of the index from the monthly survey of supply managers were new orders at 55.7, production or sales at 48.0, delivery lead time at 50.0, inventories at 50.0, and employment at 48.8. “Weakness and job losses were recorded for the state’s nondurable goods producers while durable goods manufacturers recorded upturns in sales, jobs and production for the month. Based on surveys over the past several months, overall economic growth for Arkansas for the first half of 2013 will be slight, but positive,” said Goss.

Iowa: For a second straight month, Iowa’s Business Conditions Index increased. The overall index from a survey of supply managers in the state climbed to 59.8, a regional high, from December’s 53.8. Iowa’s leading economic indicator has now moved above growth neutral for 37 straight months. Components of the index for January were new orders at 66.7, production or sales at 63.1, delivery lead time at 58.2, employment at 56.9, and inventories at 53.9. “Both durable and nondurable goods manufacturers experienced healthy growth for the month. While food processing has been a challenging industry for much of the region, Iowa’s food manufacturers reported job gains and production growth for the month,” said Goss.

Kansas: The Kansas Business Conditions Index for January expanded to a frail 48.3 from 46.6. Components of the leading economic indicator from the monthly survey of supply managers for January were new orders at 44.4, production or sales at 42.3, delivery lead time at 50.9, employment at 50.5, and inventories at 53.4. “Except for Iowa, Kansas depends more heavily on exports than any other state in the region. Additionally, Kansas’s exports tend to more volatile than that of the other eight states. As a result, the pullback in exports and new export orders had more of a negative effect on the Kansas economy than on the other eight states. I expect the Kansas economy to grow only slightly for the first half of 2013 with only minimal job gains for the overall economy with relatively minor job losses for the state’s manufacturing sector,” said Goss.

Minnesota: For a second straight month, Minnesota’s Business Conditions Index moved above growth neutral. The index from a monthly survey of supply managers in the state declined to 52.6 from 57.2 in December. Components of the index from the January survey were new orders at 45.1, production or sales at 51.0, delivery lead time at 62.5, inventories at 52.7, and employment at 51.7.“January pullbacks were recorded for nondurable goods manufacturers, including food producers. Excluding medical equipment manufacturers, growth among durable goods producers, especially metal manufacturers, more than offset nondurable weakness,” said Goss.

Missouri: The January Business Conditions Index for Missouri advanced to 51.2 from December’s 46.8. Components of the survey of supply managers in the state were new orders at 48.4, production or sales at 50.1, delivery lead time at 54.5, inventories at 47.7, and employment at 56.0. “While the U.S. vehicle manufacturing industry has expanded at a healthy pace, that has not been the case for Missouri. Automobile producers and firms linked to vehicle manufacturing are not growing at the national pace. On the other hand, metal manufacturing firms are reporting healthy upturns in business conditions,” said Goss.

Nebraska: For only the second time in the past five months, the state’s leading economic indicator advanced above growth neutral. The Business Conditions Index, from a survey of supply managers, increased to 50.5 from 48.4 in December. Components of the index for January were new orders at 50.4, production or sales at 47.0, delivery lead time at53.2, inventories at 55.6, and employment at 46.4. “Downturns in business conditions for durable goods producers, especially those tied to international markets, restrained the state’s January readings. Nebraska’s metal manufacturing firms, contrary to their counterparts in the rest of the region, detailed pullbacks in economic activity for January,” said Goss.

North Dakota: For a second straight month, North Dakota’s leading economic indicator is pointing to softer economic growth in the next three to six months. The index expanded to 53.8 from December’s 50.9. Components of the overall index for January were new orders at 49.2, production or sales at 64.0, delivery lead time at 50.9, employment at 55.6, and inventories at 49.2. “We are again tracking softer business activity for manufacturing firms in the state. Even though I expect positive growth for the state for the first half of 2013, I expect that expansion to be much weaker than what was experienced for the same period in 2012,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma expanded for January. The leading economic indicator from a monthly survey of supply managers grew to 53.8 from 52.1 in December. Components of the January survey of supply managers in the state were new orders at 53.4, production or sales at 46.8, delivery lead time at 48.0, inventories at 67.8, and employment at 52.9. “Oklahoma, much like North Dakota has benefited from an expanding energy sector. Like North Dakota that growth has softened. I expect growth for the first half of 2013 to be positive but well down from that experienced for the same period in 2012,” said Goss.

South Dakota: For a second straight month, South Dakota’s leading economic indicator from a survey of supply managers rose above the 50.0 threshold to 53.5 from 51.9 in December. Components of the index for January were new orders at 55.8, production or sales at 60.3, delivery lead time at 48.1, inventories at 44.7, and employment at 58.4. “Even though manufacturing activity in the state has picked up, pullbacks in economic activity for technology services firms and energy linked companies restrained growth for the state’s economy for January. However, growth will continue to be positive for the first half of 2013 for the state with job growth positive but tepid,” said Goss.

Survey results for February will be released on the month’s first business day, March 1.

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For historical data and forecasts visit our website at:
http://www.creighton.edu/business/economicoutlook/