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Healthy Growth Ahead for Mid-America Economy

Supply Managers Expect Strong 2014 Hiring

May survey results at a glance:

  • Leading economic indicator rises to highest level in more than three years.
  • Employment index surges to highest level in more than a year.
  • More than four of 10 firms expect an upturn in hiring for the rest of 2014.
  • Only one of 10 firms anticipates layoffs for the remainder of 2014.
  • Wholesale price gauge down for the month but up from the same time last year.

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

Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 60.5 from 60.4 in April.

“This is the highest overall reading that we have recorded in more than three years. Strong growth in new orders over the past two months was the prime factor pushing the overall index higher. The fulfillment of these orders in the months ahead will strengthen regional economic growth over the next three to six months,” 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 weather restrained job growth for quarter one, businesses expanded employment at a brisk pace for April and May. The employment index surged to 60.0, its highest level in more than a year, and up from April’s 54.2. “Both durable and nondurable goods manufacturers are adding jobs at a healthy pace. Even with post-recession expansions, regional manufacturing employment is down by almost 10 percent from pre-recession levels. Until recently manufacturers had increased output primarily via expanding hours worked for current employees and rising productivity. However, manufacturing employers are currently adding jobs at a healthy pace,” said Goss.

Hiring for 2014:Approximately 10.7 percent of firms in the region anticipate layoffs for the remainder of this year, while 41.3 percent expect new hiring for 2014. The remaining 48 percent expect little or no change in employment levels for the rest of 2014.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, declined for the month. The wholesale inflation index sank to a still strong 73.1 from April’s 75.9. Inflationary pressures at the wholesale level, while not in the danger zone, are elevated from the same time last year.

“Reports like this by supply managers will encourage the Federal Reserve to continue to reduce its monetary stimulus termed quantitative easing (QE3),” said Goss.

This month supply managers in the region were asked how much they expect the price of products they purchase to rise in the next six months. “On average, supply managers anticipate a gain of 2.4 percent for the next six months, or approximately 4.8 percent on an annual basis. On an annual basis, this is down by more than one percentage point from January of this year when we asked the same question,” said Goss.

Confidence: Looking six months ahead, economic optimism, as captured by the May business confidence index, dipped to a still ealthy 62.5 from April’s 64.2. “Improvements in the national and regional job market supported supply managers’ business outlook for the month,” said Goss.

Inventories: The inventory index, which tracks the level of raw materials and supplies, dipped to a solid 56.0 from April’s 56.6. “While the rate of inventory expansion slowed, May’s 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 import index for May declined to 62.6 from May’s 55.6. The new export orders index sank to 53.0 from 60.8 in April. “It is a very encouraging signal to track a seventh straight month of expanding new export orders. Exports have been an important source of growth for the region. 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,” said Goss.

Other components: Other components of the May Business Conditions Index were new orders at 63.5, down from 66.3 in April; production or sales at 67.1, down from April’s 68.3; and delivery lead time for May dropped to 55.9 from last month’s 56.6.

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 May overall index, or leading economic indicator, for Arkansas declined to a healthy 58.9 from April’s even stronger 62.9. Components of the index from the monthly survey of supply managers were new orders at 52.1, production or sales at 54.1, delivery lead time at 64.6, inventories at 57.1, and employment at 62.7. “Despite recent growth in the Arkansas manufacturing sector, the state’s manufacturers are employing approximately 17.2 percent fewer workers today than before the beginning of the national recession. Furthermore, the manufacturing wage rate is down by 0.2 percent from one year ago. However, our surveys over the past several months point to solid improvements for manufacturing and the overall state economy in the next three to six months with healthy wage additions,” said Goss.

Iowa: Iowa’s Business Conditions Index for May slipped to a still robust 66.5 from April’s very healthy 67.2. Components of the index from the monthly survey of supply managers were new orders at 74.7, production or sales at 75.1, delivery lead time at 50.8, employment at 69.6, and inventories at 62.6. “Despite healthy growth in the Iowa manufacturing sector, the state’s manufacturers are employing approximately 6.1 percent fewer workers today than before the beginning of the national recession. On the other hand, the manufacturing wage rate has expanded by a solid 4.4 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy with healthy wage increases,” said Goss.

Kansas: The Kansas Business Conditions Index for May declined to 58.8 from April's 61.0. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 57.2, production or sales at 68.8, delivery lead time at 46.9, employment at 53.4, and inventories at 68.0. “Despite healthy growth in the Kansas manufacturing sector, the state’s manufacturers are employing approximately 14 percent fewer workers today than before the beginning of the national recession. On the other hand, the manufacturing wage rate has expanded by very strong 9.7 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months,” said Goss.

Minnesota: For 18 straight months, Minnesota’s Business Conditions Index has remained above growth neutral. The index expanded to a robust 67.3 from 64.9 in April. Components of the index from the May survey of supply managers were new orders at 76.7, production or sales at 78.3, delivery lead time at 57.0, inventories at 69.8, and employment at 54.8. “Despite impressive gains for manufacturers in the state over the past year, Minnesota’s manufacturing sector has approximately 6.6 percent fewer workers today than before the national recession began. Additionally, the manufacturing wage rate has expanded by a weak 1.5 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months with upturns in wage gains,” said Goss.

Missouri: The May Business Conditions Index for Missouri slipped to a still solid 57.7 from 54.8 in April. Components of the survey of supply managers for May were new orders at 57.4, production or sales at 62.7, delivery lead time at 57.3, inventories at 51.6, and employment at 59.4. “Despite solid gains for manufacturers in the state over the past year, Missouri’s manufacturing sector has approximately 13 percent fewer workers today than before the national recession began. On the other hand, the manufacturing wage rate has expanded by a strong 6.5 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months,” said Goss.

Nebraska: For the fifth straight 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 55.6 from April’s 55.1. Components of the index for May were new orders at 58.6, production or sales at 59.2, delivery lead time at 56.5, inventories at 52.6, and employment at 51.2. “Despite healthy gains for manufacturers in the state over the past year, Nebraska’s manufacturing sector has approximately 5.8 percent fewer workers today than before the national recession began. Moreover, the manufacturing wage rate has expanded by a weak and sub-par 0.2 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months with healthy wage increases,” said Goss.

North Dakota: North Dakota’s leading economic indicator expanded to 65.2 from April’s 60.2. Components of the overall index from the monthly survey of supply managers for May were new orders at 70.2, production or sales at 62.5, delivery lead time at 56.9, employment at 78.3, and inventories at 58.1. “Despite experiencing the strongest economic growth in the nation over the past several years, North Dakota’s manufacturing sector has approximately 3 percent fewer manufacturing workers today than before the national recession began. Additionally, the manufacturing wage rate in the state has expanded by a modest 3.2 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months with very strong wage gains,” said Goss.

Oklahoma: The leading economic indicator for Oklahoma continues to point to healthy gains for the next three to six months. Oklahoma’s Business Conditions Index for May expanded to a solid 58.3 from last month’s 54.8. Components of the May survey of supply managers were new orders at 67.4, production or sales at 64.8, delivery lead time at 50.6, inventories at 51.6, and employment at 56.9. “Despite healthy gains for manufacturers in the state over the past year, Oklahoma’s manufacturing sector has approximately 8.3 percent fewer manufacturing workers today than before the national recession began. On the other hand, the manufacturing wage rate in the state has expanded by a solid 4.6 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months with solid wage gains,” 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 a regional high of 68.9 from April’s 68.1. Components of the overall index for May were new orders at67.9, production or sales at 76.1, delivery lead time at 63.6, inventories at 65.0, and employment at 71.7. “Despite healthy gains for manufacturers over the past year, South Dakota’s manufacturing sector has approximately the same number of workers today than before the national recession began. Furthermore, the manufacturing wage rate in the state has expanded by a tepid 2.2 percent from one year ago. Our surveys over the past several months point to solid improvements for manufacturing and the overall state economy for the next three to six months with strong wage gains,” said Goss.

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

Follow Goss on twitter at http://twitter.com/erniegoss

For historical data and forecasts visit our website at:
http://www2.creighton.edu/business/economicoutlook/