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Mid-America Leading Indicator Healthy for April

Inflationary Pressures Cool Again

April survey results at a glance:

  • Leading economic indicator points to continuing growth for the next three to six months.
  • More than three-fourths of businesses reported that the federal spending sequestration has had no impact on their business.
  •  Inflationary pressures at the wholesale level decline again.
  • Approximately half of businesses surveyed have experienced or expect to experience negative impacts from the Affordable Care Act.

The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, dipped for the month. The index continues to point to improving 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 56.8 from March’s even healthier 58.2.

“Durable goods producers in the region continue to outperform nondurable goods manufacturers. Durable goods manufacturers reported strong growth in new orders from both domestic and international buyers. Despite this healthy growth, inflationary pressures at the wholesale level remain restrained,” 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 climbed above 50.0 for the past three months. The April reading rose to 60.7 from March’s 56.3.

“Companies in the region are increasing the pace of new hiring. For the entire region, I expect the employment to rise to pre-recession levels this summer. At this point in time, the region’s employment level is off less than one-half of a percentage point from pre-recession levels. Of course this differs by state with Arkansas, Kansas and Missouri lagging well behind the remainder of the states,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, sank to 62.6 from 64.1 in March. “Inflationary pressures at the wholesale level are clearly trending lower. Thus far, the Federal Reserve’s cheap money policy is elevating inflationary pressures, but only modestly. The bigger problem in Mid-America has been the Fed’s impact on asset prices such as farmland which continue to expand at rates that should concern agriculture interests,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the April business confidence index, expanded to 59.9 from 58.2 in March. “Supply managers expect the upturn in housing to remain an important ingredient of the economic expansion. The federal spending sequestration is having almost no impact on the outlook. The last two months, we have asked supply managers how the federal spending sequestration was affecting their company. More than three-fourths of supply managers in March and April indicated that the cuts have had no impact on their company to date. Less than one-fourth reported only modest impacts. None of the businesses reported significant impacts,” said Goss.

This month supply managers were asked what the expected outcome from the Affordable Care Act would be on their business. Approximately 50 percent have experienced, or expect to experience negative impacts. Only 2 percent anticipate positive impacts, while the remaining 48 percent expect little or no impact on their business.

Inventories: Regional inventory levels increased for the month but at a slower pace compared to March. The April inventory index slumped to 50.6 from March’s 58.1. “Companies in our survey have now expanded inventory levels for five straight months. This inventory accumulation will add to regional growth in the months ahead. This is another indicator of improving business confidence,” said Goss.

Trade: New export orders improved for the month. The new export orders index increased to a 54.5 from 50.9 in March. In another signal of an expanding regional economy, the import index advanced for a third straight month to 58.4 from March’s 55.0 and 53.7 in February.

“Upturns in production have pushed supply managers to increase their purchases from abroad. While the increase in new export orders for the month is good news, we will need to experience several months of this growth to be confident that exports are once again adding to regional growth,” said Goss.

Other components: Other components of the April Business Conditions Index were new orders at 61.3, down from March’s very strong 65.4; production or sales at 63.2, up from 62.4; and delivery lead time at 48.5, down from 49.0 in March.

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 April overall index for Arkansas increased to 56.9 from 53.9 in March. Components of the index from the March survey of supply managers were new orders at 52.8, production or sales at 62.2, delivery lead time at 53.1, inventories at 66.7, and employment at 49.8. “Arkansas’ current employment level is almost two percent lower than its pre-recession level. Among the nine Mid-America states, Arkansas lags all states, except for Missouri, in terms of job performance. Our surveys over the last several months indicate that Arkansas will continue to add jobs, but at a pace significantly below that of other states in the region. Nondurable goods manufacturers in the state report pullbacks in economic activity,” said Goss.

Iowa: For a fourth straight month, Iowa’s Business Conditions Index increased. The overall index from a survey of supply managers climbed to a regional high of 69.1 from March’s 65.5, also a regional high. Components of the index for April were new orders at 77.9, production or sales at 78.0, delivery lead time at 51.0, employment at 69.1, and inventories at 69.6. “Compared to pre-recession levels, Iowa is currently down only one-half of one percentage point in terms of employment. Both durable and nondurable goods manufacturers are reporting very healthy business activity with job gains trending positively,” said Goss.

Kansas: The Kansas Business Conditions Index for April rose to 52.3 from 52.0 in March. Components of the leading economic indicator were new orders at 64.3, production or sales at 60.3, delivery lead time at 50.1, employment at 50.0, and inventories at 36.7. “Among the nine Mid-America states, only Arkansas and Missouri lagged Kansas in terms of job creation since the recession. The state’s current employment level is still down by almost 19,000 jobs, or 1.3 percent. Recent growth among durable goods manufacturers has lagged that of nondurable goods producers,” said Goss.

Minnesota: For a fifth straight month, Minnesota’s Business Conditions Index moved above growth neutral. The index from a monthly survey of supply managers in the state rose to 55.7 from 55.2 in March. Components of the index from the April survey were new orders at 57.6, production or sales at 57.4, delivery lead time at 55.7, inventories at 51.4, and employment at 56.5. “Compared to its pre-recession level, Minnesota has regained all jobs lost during the recession. Over the past several months, durable goods producers are reporting healthier growth in business activity than nondurable goods manufacturers. Our surveys over the past several months point to an expanding state economy in the months ahead with solid improvements in business activity,” said Goss.

Missouri: The April Business Conditions Index for Missouri slipped to 52.8 from 54.9 in March. Components of the survey of supply managers in the state were new orders at 53.1, production or sales at 56.8, delivery lead time at 48.5, inventories at 47.0, and employment at 57.4. “Since the recession began in 2007, Missouri under-performed all other states in the region in terms of job creation in the region. Compared to pre-recession levels, Missouri’s employment is still down more than 120,000 jobs, or 4.3 percent. Recent gains among durable goods producers in the state will boost both economic and job prospects for the state in the months ahead,” said Goss.

Nebraska: Nebraska’s leading economic indicator is trending higher. The overall index from the April survey of supply managers in the state climbed to 55.6 from March’s 53.4. Components of the index for April were new orders at 62.7, production or sales at 58.9, delivery lead time at 48.7, inventories at 53.0, and employment at 54.8. “Nebraska has regained all the jobs that it lost during the recession. Durable goods manufacturers will continue to lead economic and job growth for the state in the next three to six months,” said Goss.

North Dakota: North Dakota’s leading economic indicator expanded for April. The index from a survey of supply managers in the state advanced to 57.9 from 55.8 in March. Components of the overall index for April were new orders at 61.4, production or sales at 56.5, delivery lead time at 58.4, employment at 73.6, and inventories at 39.5. “Contrary to all other Mid-America states, North Dakota gained jobs during the recession. North Dakota’s current employment level is almost 80,000 jobs, or 21.9 percent above its pre-recession levels. While our surveys of firms in North Dakota point to very healthy growth, the economic expansion over the next three to six months will be down from the same period for 2012,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma remained above growth neutral for April. The leading economic indicator from a monthly survey of supply managers dipped slightly to 59.8 from March’s 60.0. Components of the April survey of supply managers in the state were new orders at 56.7, production or sales at 57.9, delivery lead time at 48.7, inventories at 78.7, and employment at 57.3. “Oklahoma’s current employment level is almost 16,000, or 1 percent, above its pre-recession level. While recent activity among nondurable goods producers such as energy firms has been somewhat weaker, durable goods manufacturers continue to expand. Based on our surveys, growth for the next three to six months will be positive but down somewhat from the same period of 2012,” said Goss.

South Dakota: For a fifth straight month, South Dakota’s leading economic indicator from a survey of supply managers rose above the 50.0. The overall index from a survey of supply managers in the state climbed to 59.4 from March’s healthy 58.7. Components of the index for April were new orders at 63.0, production or sales at 72.2, delivery lead time at 49.8, inventories at 53.7, and employment at 58.1. “South Dakota’s employment level is now more than 11,000, or 2.8 percent, above its pre-recession level. Our surveys over the past several months point to continuing economic growth and job expansions for the state in the next 3 to 6 months with durable goods manufacturers leading the way,” said Goss.

Survey results for May will be released on the first business day of the month June 3.

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