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Mid-America Leading Indicator Softens for June

Impact of Spending Sequestration Growing

June survey results at a glance:

  • Regional readings remain significantly stronger than indices from the national survey of supply managers.
  • Approximately 30 percent of businesses reported modest and negative impacts from federal spending sequestration.
  • Inflationary pressures at the wholesale level declined for the fourth straight month.
  • The economic outlook of supply managers tumbles for the month.

The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, declined for a third straight month. The index continues to point to positive, but somewhat 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 to a solid 55.6 from 56.2 in May. “Our regional gauge has been significantly stronger than the national reading over the past several months. Given other economic data over this same period of time, I think our regional indices have been on target pointing to positive, but slowing growth with diminishing inflationary pressures,” 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 five months. The June reading slumped to 53.7 from May’s 59.3. “Annualized job growth for the first half of 2013 has slowed to approximately 1 percent compared to 1.5 percent for the same period last year for the Mid-America Region. Durable goods manufacturers continue to add jobs at a faster pace than nondurable goods producers and nonmanufacturing firms in the region. Increasing interest rates and a strengthening U.S. dollar have, and will continue to have, negative but modest impacts for businesses in the region, particularly those tied to agriculture. Even so, the regional job growth will remain positive but sluggish,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, sank for a fourth straight month to 58.4 from 61.2 in May. “Wholesale inflationary pressures continue to move lower in the region. A 5 percent increase in the value of the U.S. dollar in 2013 and slower global economic growth have placed downward pressure on inflation at the wholesale level. Not only is wholesale inflation tame, it is headed lower,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the June business confidence index, plummeted to 51.1 from May’s 59.4 and April’s 59.9. The rapid upturn in interest rates pushed supply manager’s economic outlook lower. The federal spending sequestration is having very little impact on the outlook.

“The last four months, we have asked supply managers how the federal spending sequestration was affecting their company. In the June survey, approximately 70.8 percent of supply managers indicated that the cuts have had no impact on their company to date. Approximately 29.2 percent reported only modest impacts from sequestration. As in past months, none of the businesses reported significant impacts. However, the share of businesses negatively affected has been rising slightly,” said Goss.

Inventories: Regional inventories continue to grow but at a slower pace as the June inventory index slid to 51.6 from May’s 56.2. “In anticipation of expanding sales, companies in our survey have now increased inventory levels for seven 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 expanded for the month but at a slower pace than in May. The new export orders index dipped to 52.9 from 55.9 in May. The import index fell to 52.9 from 53.5 in May. “Despite this year’s rise in the value of the U.S. dollar and slowing global growth, export orders continue to grow but at a reduced rate. The decline in the price of foreign goods failed to significantly boost purchases of goods from abroad,” said Goss.

Other components: Other components of the June Business Conditions Index were new orders at 57.0, up from 54.8 in May; production or sales at 60.3, up from 57.3; and delivery lead time at 55.4, up from 53.6 in May.

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 June overall index for Arkansas dipped to 52.6 from 55.1 in May. Components of the index from the survey of supply managers were new orders at 46.5, production or sales at 44.7, delivery lead time at 50.8, inventories at 66.7, and employment at 54.1. “Business expansion for durable goods producers remains strong and has offset weakness among nondurable goods producers. Even as construction activity has stabilized, the industry has yet to recapture job losses from the national recession with industry jobs down 17 percent from 2007,” said Goss.

Iowa: For the first time this year, Iowa’s Business Conditions Index declined. The overall index from a survey of supply managers for June slipped to a very strong 69.3 from May’s70.0. Components of the index for June were new orders at 77.7, production or sales at 70.2, delivery lead time at 54.8, employment at 70.5, and inventories at 73.3. “Over the past 12 months, Iowa durable goods producers and nondurable goods manufacturers have increased employment levels by more than 3 percent, which was tops in the region. Our surveys over the past several months signal that this growth will continue over the next three to six months,” said Goss.

Kansas: The Kansas Business Conditions Index for June rose to 58.6 from 53.1 in May. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 73.6, production or sales at 70.1, delivery lead time at 47.5, employment at 62.5, and inventories at 39.2. “Both durable and nondurable goods producers are experiencing healthy growth in sales and jobs. However, pullbacks were recorded for food processors in the state. Growth will be positive, but down from the same period of 2012,” said Goss. Minnesota: For a seventh straight month, Minnesota’s Business Conditions Index moved above growth neutral. The index from a monthly survey of supply managers in the state climbed to 56.2 from May’s 55.2. Components of the index from the June survey were new orders at 51.9, production or sales at 55.0, delivery lead time at 56.8, inventories at 62.0, and employment at 55.6. “Minnesota’s economy has been boosted by an expanding construction sector. However even with the expansion, the building sector is well down from pre-recession levels. Pullbacks among nondurable goods manufacturers were more than offset by an expanding durable goods sector including metal manufacturers,” said Goss.

Missouri: The June Business Conditions Index for Missouri rose slightly to 54.7 from 54.6 in May. Components of the survey of supply managers in the state were new orders at 55.6, production or sales at 61.0, delivery lead time at 52.2, inventories at 46.7, and employment at 58.2. “Expansions among durable goods manufacturers, including metal producers, more than offset cuts for nondurables goods manufacturers for the month,” said Goss.

Nebraska: As in previous months, the stronger U.S. dollar is cutting into the growth recorded by Nebraska’s businesses. The overall index from the June survey of supply managers in the state sank to 51.1 from May’s 53.2. Components of the index for June were new orders at 48.1, production or sales at 52.7, delivery lead time at 52.5, inventories at 51.3, and employment at 51.0. “Durable goods producers in the state, including metal manufacturers and agriculture equipment producers, continue to grow at a healthy pace. Nebraska and Iowa are the only states in the region to experience very healthy growth for both durable and nondurable goods manufacturers. Even so, our surveys point to slower growth for the overall Nebraska economy in the months ahead,” said Goss.

North Dakota: North Dakota’s leading economic indicator expanded for June. The index from a survey of supply managers in the state advanced to 61.0 from 55.4 in May. Components of the overall index for June were new orders at 53.9, production or sales at 51.6, delivery lead time at 60.4, employment at 68.8, and inventories at 70.3. “The state’s mining industry continues to expand at a brisk pace. Companies that we survey each month that are tied to this sector are likewise growing at a healthy rate. Manufacturers and construction firms are benefiting from the North Dakota’s vigorous energy sector,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma remained above growth neutral for June. The leading economic indicator from a monthly survey of supply managers climbed to 59.6 from May’s 55.6. Components of the June survey of supply managers in the state were new orders at 64.2, production or sales at 65.9, delivery lead time at 53.3, inventories at 60.5, and employment at 54.2. “Growth for durable goods producers in the state more than offset weaker conditions for Oklahoma’s energy firms and for nondurable manufacturers,” said Goss.

South Dakota: For a seventh straight month, South Dakota’s leading economic indicator from a survey of supply managers rose above growth neutral 50.0. The overall index from a survey of supply managers rose to a strong 62.9 from May’s 61.7. Components of the index for June were new orders at 74.5, production or sales at 64.8, delivery lead time at 54.9, inventories at 52.0, and employment at 68.3. “Manufacturers in the state are adding to their employment levels as sales and new orders grow at a solid pace,” said Goss.

Survey results for July will be released on the first business day of the month Aug. 1.

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