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Mid-America Economy Ends First Quarter on High Note

Concerns Raised Over Trade Skirmishes

March survey results at a glance:

  • Leading economic indicator advances pointing to improving regional growth.
  • Supply managers expect wages to expand by 1.8 percent over the next year.
  • Growth in new export orders remains solid.
  • Regional employment rises to record level and well above pre-recession level.

The Mid-America Business Conditions Index for March, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, points to positive and improving growth in the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 58.2 from 57.4 in February.

“Much like the national economy, the Mid-America region continues to expand with growth prospects improving monthly. Despite negative fallout from severe weather for the first quarter of the year, supply managers reported healthy business activity for the first three months of 2014,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.

Employment: After declining below growth neutral for December, the employment gauge has remained above the threshold for the third straight month. The employment index dipped slightly to a still solid 54.4 from 55.6 in February.

“According to surveys over the past several months, the region will continue to expand employment at a solid pace. Even with the improving job picture, supply managers expect wage growth to remain weak with an average wage expansion of 1.8 percent for the next year. This is only slightly above the 1.6 percent recorded last year at this time,” said Goss.

Wholesale Prices: For the first time since November of last year, the prices-paid index, which tracks the cost of raw materials and supplies, declined. The wholesale inflation gauge fell to a still strong 72.8 from 75.7 in February. Inflationary pressures at the wholesale level are elevated from the same time last year. This month supply managers in the region were asked to estimate growth in the prices for raw materials and supplies purchased by their firm in the next six months.

“On average, respondents expect prices to expand by 2.4 percent in the next six months or approximately 4.8 percent annualized. This is two full percentage points lower, on an annualized basis, than was reported by firms in March of last year,” said Goss.

Confidence: Looking six months ahead, economic optimism, as captured by the March business confidence index, declined to a strong 59.0 from February’s 59.7.

“Improvements in the job market supported supply managers’ business outlook for the month. However, several supply managers raised concerns regarding Russian trade embargoes associated the Russia’s recent invasion of Crimea. There is a fear that any restrictions could result in retaliation,” said Goss.

Inventories: The inventory index, which tracks the level of raw materials and supplies, dipped to 57.6 from February’s 59.7.

“While the rate of inventory expansion slowed, March’s solid inventory index is yet another signal that supply managers are more upbeat about the economy as they increased inventories in anticipation of expanding sales for their companies in the months ahead,” said Goss.

Trade: The new export orders index declined to a still solid 54.1 from 55.4 in February. The import index for March rose to 54.2 from 52.4 in February.

“It is a very encouraging signal to track a fifth straight month of healthy new export orders.” said Goss. “At the same time, firms in the region continued purchasing from abroad in expectations of upturns in company sales in the weeks and months ahead."

Other components: Other components of the March Business Conditions Index were new orders at 58.5, up from 53.4 in February; production or sales at 61.1, down from February’s 61.7; and delivery lead time at 59.4, up from February’s 56.8.

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 March overall index, or leading economic indicator, for Arkansas expanded to 62.6 from February’s 55.1. Components of the index from the monthly survey of supply managers were new orders at 75.2, production or sales at 49.8, delivery lead time at 58.4, inventories at 78.5, and employment at 50.9.

“Arkansas construction activity continues to expand, but overall building activity remains well below pre-recession levels. Growth among business services firms more than offset pullbacks for nondurable goods manufacturers. Manufacturers continue to expand output via higher productivity and increases in hours worked and thus are not expanding employment at the point in time. I expect manufacturers and nonmanufacturers in Arkansas to add jobs at a healthy pace in quarter two of this year,” said Goss.

Iowa: Iowa’s Business Conditions Index climbed to a regional high of 67.2 from February’s 64.5, also a regional high. Components of the index from the monthly survey of supply managers were new orders at 69.4, production or sales at 70.8, delivery lead time at 71.3, employment at 60.7, and inventories at 63.6.

“Both durable and nondurable manufacturers are adding jobs in the Iowa. Based on our surveys over the past several months, I expect manufacturers and nonmanufacturers to expand jobs and output at the higher rate in the second quarter of 2014. Exports will remain an important component of growth. Of the nine Mid-American states, Iowa’s economy is the most dependent on exports,” said Goss.

Kansas: The Kansas Business Conditions Index for March dropped to a still solid 54.6 from 55.1 in February. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 41.2, production or sales at 67.0, delivery lead time at 49.9, employment at 51.0, and inventories at 63.6.

“Contrary to the rest of the region, nondurable goods producers in Kansas are expanding at a faster pace than durable goods manufacturers. Based on our survey results over the past several months, I expect the Kansas economy to expand jobs and overall economic activity for the second quarter of this year. However, this growth will be below that of the other eight states in the region,” said Goss.

Minnesota: For 16 straight months, Minnesota’s Business Conditions Index has remained above growth neutral. The index advanced to 66.1 from February’s 64.1. Components of the index from the March survey were new orders at 65.0, production or sales at 71.7, delivery lead time at 64.5, inventories at 74.8, and employment at 54.7.

“Expansions among Minnesota manufacturers and value-added services companies continue to push the overall economy into a robust growth range. While not back to pre-recession levels, construction growth has been solid despite the severe weather,” said Goss.

Missouri: The March Business Conditions Index for Missouri grew to 53.8 from 53.6 for February. Components of the survey of supply managers in the state were new orders at 49.9, production or sales at 54.6, delivery lead time at 56.7, inventories at 53.6, and employment at 54.2.

“Durable goods producers, especially those tied to exports and motor vehicle manufacturing, are expanding jobs and overall economic activity at a healthy pace. I expect this growth to spill over into the broader economy in the next two quarters,” said Goss.

Nebraska: For the fourth month Nebraska’s overall index rose above 50.0. The index, a leading economic indicator from a survey of supply managers in the state, expanded to 54.8 from February’s 53.9. Components of the index for March were new orders at 56.6, production or sales at 58.9, delivery lead time at 46.1, inventories at 53.2, and employment at 59.1.

“The pace of Nebraska growth is quickening. Nondurable goods manufacturers, including food processors, are expanding output and jobs while growth for durable goods producers has slowed to nil. I expect the overall Nebraska economy, including manufacturing, to expand over the next two quarters according to our survey results,” said Goss.

North Dakota: North Dakota’s leading economic indicator rose to 60.3 from February’s 57.6. Components of the overall index from the monthly survey of supply managers for March were new orders at 60.0, production or sales at 55.5, delivery lead time at 66.1, employment at 64.4, and inventories at 55.8.

“Manufacturing growth remains positive. However, growth among firms tied to energy have once again begun to push overall state economy growth well above the pace of the region and the nation. Absent housing and labor shortages in portions of the state, North Dakota growth could be double its current pace according to our surveys over the past several months,” said Goss.

Oklahoma: After slipping below growth neutral in the third quarter of 2013, Oklahoma’s Business Conditions Index has been pointing toward growth for the first half of 2014. The overall index, a leading economic indicator, advanced to 59.5 from February’s 58.9. Components of the March survey of supply managers were new orders at 69.6, production or sales at 59.4, delivery lead time at 52.4, inventories at 56.4, and employment at 60.0.

“Food processors in Oklahoma are experiencing pullbacks in economic activity. Firms linked to vehicle manufacturers are benefiting from expansions among U.S. automobile production. Expansions among firms tied to energy are also pushing state growth higher,” said Goss.

South Dakota: After moving below growth neutral in November of 2012, South Dakota’s leading economic indicator has been above growth neutral 50.0 each month since. The overall index from the monthly survey of supply managers expanded to 63.8 from February’s 60.9. Components of the overall index for March were new orders at 63.0, production or sales at 75.3, delivery lead time at 50.3, inventories at 64.3, and employment at 65.9.

“There are more South Dakotans working than ever before. Manufacturers are growing jobs and output at a healthy pace. This is spilling over into the broader state economy. Based on our survey results, I expect the rate of growth to quicken in the months ahead,” said Goss.

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

Follow Goss on twitter at http://twitter.com/erniegoss.
For historical data and forecasts visit:
http://www2.creighton.edu/business/economicoutlook/