Negative Impact from Government Shutdown
October survey results at a glance:
- Leading economic indicator drops to its lowest level since 2012.
- Businesses reported job cuts for October.
- Almost one-fourth of businesses report negative impacts from government shutdown.
- New export orders tumbled to lowest level since April 2009.
- Two-thirds of businesses reported no impact from federal spending sequestration.
After rising for two straight months, the monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, tumbled to its lowest level since 2012.
Overall index: The Business Conditions Index, which ranges between 0 and 100, fell to growth neutral 50.0 from 54.8 in September. “The partial government shutdown combined with pullbacks among firms with ties to agriculture pushed overall economic conditions lower for the month. For example, agriculture equipment manufacturers are reporting cuts in business growth. Additionally, new export orders declined dramatically for the month,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Employment: After eight straight months above growth neutral, the region’s employment gauge fell below 50.0 for October. The index declined to a weak 48.2 from 51.8 in September. “This month a fairly significant number of companies reported reducing hiring and temporarily cutting employment as a result of the partial government shutdown. Firms linked to agriculture continue to experience weak hiring and pullbacks in business activity,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, declined for the month. The wholesale inflation gauge dipped to 63.1 from September’s 64.8. "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 farmland and housing at rates that are not sustainable,” said Goss.
Confidence: Looking six months ahead, economic optimism, as captured by the October business confidence index, expanded to 56.0 from September’s 51.8. “The October survey was conducted after the government shutdown had ended. Even thought the shutdown and raising the debt ceiling was only pushed out several months, it did boost the economic outlook for firms in our survey,” said Goss.
This month supply managers were asked how the shutdown affected their firm. “Almost one-fourth, or 23.8 percent, indicated the shutdown had negatively affected their firm. The remaining 76.2 percent reported that the shutdown had no impact on their firm,” reported Goss.
For each of the last eight months, supply managers were asked how the federal spending sequestration was affecting their company. “In the October survey, approximately two-thirds of supply managers indicated the cuts have had no impact to date. Slightly less than one-third reported only modest impacts from sequestration. Only 1.2 percent of businesses reported significant impacts. According to surveys over the last eight 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 50.0 from September’s 55.7. “This was a sizable decline in the index. It is difficult to determine at this point in time if the decline was planned or unplanned,” 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 by less than 4 percent from last year,” said Goss.
Trade: Trade numbers weakened markedly for the month. The new export orders index fell sharply to 44.4 from 49.0 in September. The import index sank to 48.5 from September’s 50.8. “This is the lowest new export order reading that we have recorded since the recession of April 2009. Slow regional growth weighed on purchases from abroad for the month. Over the last several months, the export reading has been moving lower reflecting slower economic growth among trading partners,” said Goss.
Other components: Other components of the October Business Conditions Index were new orders at 47.0 down from 53.7 in September; production or sales at 51.2, lower than last month’s 59.9; and delivery lead time at 53.0, down from September’s 53.7.
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 October overall index for Arkansas expanded to a weak 45.6 from 40.4 in September. Components of the index from the survey of supply managers were new orders at 40.4, production or sales at 44.1, delivery lead time at 51.1, inventories at 46.2, and employment at 46.3. “Companies linked to agriculture and food production are experiencing downturns in economic activity. I expect the state to add few jobs over the next three to six months,” said Goss.
Iowa: The Iowa Business Conditions Index declined for a fifth straight month but remains at a very healthy level. The overall index from a survey of supply managers for October declined to a still solid 58.5 from last month’s 63.3. Components of the index for October were new orders at 58.0, production or sales at 65.4, delivery lead time at 56.4, employment at 52.9, and inventories at 59.6. “Based on our surveys over the past several months, I expect Iowa’s manufacturing growth to continue to diminish in the months ahead. Overall state growth will be positive, but down from the same period one year earlier," said Goss.
Kansas: The Kansas Business Conditions Index for October fell to 56.3 from September’s 60.0. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 58.6, production or sales at 65.2, delivery lead time at 47.4, employment at 57.6, and inventories at 52.9. “Both durable and nondurable goods manufacturers expanded for the month. A decline in export orders restrained overall business activity for the month,” said Goss.
Minnesota: For an 11th straight month, Minnesota’s Business Conditions Index remained above growth neutral. The index from a monthly survey of supply managers in the state slipped to a still solid 55.2 from 57.0 in September. Components of the index from the October survey were new orders at 59.7, production or sales at 58.9, delivery lead time at 54.5, inventories at 50.0, and employment at 53.0. “Manufacturing growth in Minnesota is slowing but remains positive. Firms are increasing hours worked rather than adding to their payrolls,” said Goss.
Missouri: The October Business Conditions Index for Missouri declined to 54.3 from 55.6 in September. Components of the survey of supply managers in the state were new orders at 55.1, production or sales at 58.8, delivery lead time at 52.9, inventories at 53.6, and employment at 51.1. “Improving conditions in the state’s construction activity continue to be a source of economic growth. In manufacturing, companies are increasing hours rather than adding new employees. Metal producers in the state are experiencing improving economic conditions,” said Goss.
Nebraska: After moving above growth neutral for two straight months, Nebraska’s overall, or business conditions index, moved below the threshold for October. The index, a leading economic indicator from a survey of supply managers in the state sank to 47.0 from 52.0 in September. Components of the index for October were new orders at 41.7, production or sales at 46.3, delivery lead time at 50.7, inventories at 50.0, and employment at 45.6. “Pullbacks in construction activity and weaker conditions in agriculture negatively influenced manufacturing firms linked to these two sectors. Food processors continue to experience healthy business conditions,” said Goss.
North Dakota: North Dakota’s leading economic indicator decreased, but was the regional high reading for October. The overall index sank to 59.0 from 68.1 in September. Components of the overall index for October were new orders at 53.0, production or sales at 50.4, delivery lead time at 92.8, employment at 63.7, and inventories at 35.4. "As in previous months, energy firms and firms with ties to the state’s energy sector experienced strong gains for the month. On the other hand, North Dakota firms with strong ties to agriculture are experiencing slower growth,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma dipped below growth neutral for October to 48.6 from 49.2 in September. Components of the October survey of supply managers in the state were new orders at 51.6, production or sales at 46.1, delivery lead time at 47.7, inventories at 48.8, and employment at 48.7. “Nondurable goods firms and companies linked to energy are experiencing pullbacks in economic activity. On the other hand, metal producers in the state continue to expand at a solid pace,” 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 moved above growth neutral 50.0 each month since. The overall index, termed the Business Conditions Index, advanced to 54.7 from 51.8 in September. Components of the index for October were new orders at 51.4, production or sales at 66.7, delivery lead time at 49.1, inventories at 47.9, and employment at 58.3. “Manufacturers in the state experienced solid improvements for October. Construction activity continues to lag even with very low interest rates," said Goss.
Survey results for November will be released on the first business day of next month, Dec. 2.
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