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Mid-America Job Index Sinks for September

Affordable Care Act Having Large Negative Impact

September survey results at a glance:

  • Regional index rises for the second straight month.
  • Approximately 37.5 percent of businesses report negative employment impacts from the Affordable Care Act (ACA).
  • Approximately two-thirds of firms report no impact from federal spending sequestration.
  • Inflationary pressures at the wholesale level rise again.
  • Business confidence plunges.

The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, rose for a second straight month. Surveys over the last several months point to positive, but slow growth for the final quarter of 2013.

Overall index: The Business Conditions Index, which ranges between 0 and 100, increased to 54.8 from 53.8 in August.

“Despite all of the domestic economic uncertainty, the Mid-America survey points to positive growth for the final quarter of 2013. Growth among durable goods manufacturers more than offset pullbacks among nondurable producers and value-added service firms. Businesses linked to agriculture are experiencing much slower growth stemming from weaker agriculture commodity prices. Both exports and farm income growth are down from earlier in the year,” 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 eight months. The September reading declined to a tepid 51.8 from 52.8 in August. “Uncertainty surrounding the Affordable Care Act and the budget stalemates in Congress are causing firms to be much more cautious about hiring and have encouraged layoffs and cuts in hours worked. Nondurable goods manufacturers, especially those tied to agriculture and international markets are cutting employment and new hiring in the region,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, increased for a second straight month. The wholesale inflation gauge climbed to 64.8 from 61.8 in August. "For the last two months we have recorded fairly sizable jumps in our inflation gauge. Given that the Federal Reserve continues its $85 billion monthly bond buying stimulus program, the risk of elevated inflation is climbing but still remains well below levels that should cause concern,” said Goss.

Confidence: Looking six months ahead, economic optimism, as captured by the September business confidence index, fell to 51.8 from Augusts 53.9. “Uncertainty surrounding implementation of health care reform and the Congressional/Presidential budget impasse pushed supply managers’ economic outlook lower for the month,” said Goss.

This month supply managers were asked how the Affordable Care Act (ACA) was affecting hiring in their company. More than one-fourth, or 26.3 percent, reported that the ACA was making their firm more reluctant to hire new workers. Overall 37.5 percent of supply managers indicated that their firms either cut hiring or reduced hours worked as a result of the ACA. Approximately, 62.5 percent reported no hiring or staffing impacts for their firm.

For each of the last seven months, supply managers were asked how the federal spending sequestration was affecting their company. “In the September survey, approximately two-thirds of supply managers indicated that the cuts have had no impact to date. Slightly less than one-third reported only modest impacts from sequestration. Only 1 percent of businesses reported significant impacts. According to surveys over the last seven months, the impacts have been modest and have not grown,” said Goss.

Inventories: After declining below growth neutral for August, supply managers reported upturns in the level of raw materials and supplies to support future production. The September inventory index increased to 55.7 from 49.4 in August. “A large portion of the increase in the overall index for September was the result of an increase in inventory levels. We will have to wait and see if this upturn in inventories was planned or unplanned,” said Goss.

Trade: The new export orders index fell sharply to 49.0 from 56.2 in August. The import index increased slightly to 50.8 from August’s 49.3. “Slow regional growth weighed on purchases from abroad for the month. The weakness in the export reading was in line with what we have been tracking for several months, except for the weaker exports in August,” said Goss.

Other components: Other components of the September Business Conditions Index were new orders at 53.7, down from 56.8 in August; production or sales at 59.9, down from last month’s 60.1; and delivery lead time at 53.7, up from 50.0 in August.

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 September overall index for Arkansas fell to 40.4 from 45.8 in August. Components of the index from the survey of supply managers were new orders at 30.8, production or sales at 32.7, delivery lead time at 52.2, inventories at 47.9, and employment at 38.4. “Nondurable manufacturers continue to shed jobs while durable goods processors add jobs at a slow pace. Higher mortgage rates are cutting into construction activity in the state,” said Goss.

Iowa: The Iowa Business Conditions Index declined for a fourth straight month but remains at a very healthy level. The overall index from a survey of supply managers for September slipped to a strong 63.3 from last month’s 65.6. Components of the index for September were new orders at 66.0, production or sales at 71.6, delivery lead time at 58.2, employment at 55.8, and inventories at 64.7. “Iowa’s durable and nondurable goods manufacturers are adding jobs at the healthiest pace in the region. Food processors and manufacturing firms with links to the automobile industry are expanding at a very strong pace," said Goss.

Kansas: The Kansas Business Conditions Index for September was unchanged from Augusts 60.0. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 67.2, production or sales at 70.4, delivery lead time at 41.4, employment at 65.3, and inventories at 55.7. “September growth was recorded for durable and non-durable goods manufacturers. Food processors in state continue to experience pullbacks in economic activity. Higher mortgage rates are driving construction hiring lower,” said Goss.

Minnesota: For a 10th straight month, Minnesota’s Business Conditions Index moved above growth neutral. The index from a monthly survey of supply managers in the state dipped to a still solid 57.0 from 59.0 in August. Components of the index from the September survey were new orders at 60.3, production or sales at 63.7, delivery lead time at 54.8, inventories at 55.7, and employment at 51.9. “Expansions among durable goods manufacturers more than offset pullbacks among food processors and other nondurable goods producers in the state,” said Goss.

Missouri: The September Business Conditions Index for Missouri climbed to 55.6 from 53.6 in August. Components of the survey of supply managers in the state were new orders at 55.9, production or sales at 63.4, delivery lead time at 51.7, inventories at 50.7, and employment at 56.4. “Despite higher mortgage rates, healthy growth in construction pushed overall state growth higher as well as healthy gains for durable and nondurable goods linked to construction," said Goss.

Nebraska: After declining below growth neutral for July, Nebraska's overall index, or leading economic indicator, moved above the 50.0 threshold for two straight months. The overall index from a survey of supply managers in the state rose to 52.0 from Augusts 50.6. Components of the index for September were new orders at 50.1, production or sales at 54.2, delivery lead time at 51.3, inventories at 52.1, and employment at 52.3. “Durable and nondurable manufacturers combined to push the overall manufacturing sector forward for the month. On the other hand, firms with linkages to agriculture are experiencing downturns in overall economic activity,” said Goss.

North Dakota: North Dakota’s leading economic indicator soared for September. The overall index, from a survey of supply managers in the state, bounced to 68.1 from 54.4 in August. Components of the overall index for September were new orders at 56.0, production or sales at 50.7, delivery lead time at 85.7, employment at 77.4, and inventories at 70.7. "Energy firms and firms with ties to the state’s energy sector are experiencing very strong gains. On the other hand, manufacturers, outside firms linked to energy, are experiencing much slower growth," said Goss.

Oklahoma: The Business Conditions Index for Oklahoma dipped below growth neutral for September to 49.2 from 49.7 in August. Components of the September survey of supply managers in the state were new orders at 57.6, production or sales at 48.8, delivery lead time at 39.9, inventories at 52.0, and employment at 47.4. “As in August, pullbacks in business activity for non-durable goods producers, including food processors, more than offset slight gains for durable goods manufacturers," said Goss.

South Dakota: After moving below growth neutral last November, South Dakota’s leading economic indicator from a survey of supply managers has moved above growth neutral 50.0 each month. The overall index, termed the Business Conditions Index, slipped to 51.8 from 57.4 in August. Components of the index for September were new orders at 52.7, production or sales at 58.4, delivery lead time at 48.2, inventories at 45.7, and employment at 54.1. “Manufacturers, especially those linked to agriculture, are detailing pullbacks in economic activity and slowing overall state growth," said Goss.

Survey results for October will be released on the first business day of next month, Nov. 1.

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