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Mid-America Economy Begins Second Quarter Briskly

Export Orders Boost Growth

April survey results at a glance:
• Leading economic indicator rises to highest level in three years.
• Inflation gauge jumps to highest level since March 2012.
• Strong new export orders for the month.
• Almost two-thirds expect Affordable Care Act to have little or no impact on company.

The Mid-America Business Conditions Index for April, 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 60.4 from 58.2 in March.

“Much like the national economy, the Mid-America region continues to expand with growth prospects improving monthly. This is the highest overall reading that we have recorded since March 2011,” 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 fourth straight month. The employment index dipped slightly to a still solid 54.2 from 54.4 in March.

“Durable goods manufacturers, including vehicle producers, and nondurable goods producers, such as food processors, are adding jobs at a healthy pace. There are more workers employed in the nine-state region than ever. I expect current growth to continue in the months ahead,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, increased to its highest level since March 2012. The wholesale inflation gauge rose to 75.9 from March’s 72.8. Inflationary pressures at the wholesale level are elevated from the same time last year.

This month supply managers in the region were asked how much they expect the price of their company’s products to increase in 2014. “On average, supply managers anticipate a 2.4 percent growth for the year. While this is hardly rapid, it is well above the 2 percent reported last year at this time. Reports like this by supply managers will encourage the Federal Reserve to continue to reduce its monetary stimulus termed quantitative easing (QE3). As a result, I expect long term interest rates to continue to advance in the months ahead,” said Goss.

Confidence: Looking six months ahead, economic optimism, as captured by the April business confidence index, expanded to a strong 64.2 from March’s 59.0. “Improvements in the job market supported supply managers’ business outlook for the month. Furthermore, some of the uncertainty surrounding the number of signups for the Affordable Care Act has been reduced, thus boosting confidence,” said Goss.

This month supply managers were asked to gauge the impact of the implementation of the Affordable Care Act (ACA) on their company. Only 3.6 percent indicated significant negative impacts while 29.8 percent voiced negative impacts. Almost two-thirds or 65.5 percent reported little or no impact from the ACA. The remaining 1.2 percent indicated positive impacts from the ACA.

Inventories: The inventory index, which tracks the level of raw materials and supplies, dipped to a solid 56.6 from March’s 57.6. “While the rate of inventory expansion slowed, April’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 new export orders index advanced to a healthy 60.8 from 54.1 in March. The import index for April rose to 55.6 from March’s 54.2. “It is a very encouraging signal to track a sixth straight month of healthy new export orders. 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 April Business Conditions Index were new orders at 66.3 from 58.5 in March; production or sales at 68.3, up from March’s 61.1; and delivery lead time dropped to 56.6 from March’s 59.4.

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, or leading economic indicator, for Arkansas expanded to 62.9 from 62.6 in March. Components of the index from the monthly survey of supply managers were new orders at 70.9, production or sales at 58.2, delivery lead time at 62.5, inventories at 64.3, and employment at 58.8. “Growth among business services and durable goods manufacturing firms more than offset pullbacks for nondurable goods manufacturers. Despite impressive gains among durable goods manufacturers in Arkansas over the past year, the state’s manufacturing sector has approximately18 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Iowa: Iowa’s Business Conditions Index was unchanged from March’s very healthy 67.2. Components of the index from the monthly survey of supply managers were new orders at 72.2, production or sales at 72.9, delivery lead time at 60.6, employment at 64.3, and inventories at 66.1. “Durable goods manufacturers and ethanol producers more than offset weaker conditions for food processors in Iowa. Despite impressive gains among durable goods manufacturers in the state over the past year, Iowa’s manufacturing sector has almost 10 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Kansas: The Kansas Business Conditions Index for April expanded to a healthy 61.0 from 54.6 in March. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 64.4, production or sales at 71.0, delivery lead time at 43.7, employment at 56.8, and inventories at 69.3. “Durable goods producers continue to experience weaker economic conditions but expansions among nondurable goods producers more than offset this weaker activity. Despite impressive gains among nondurable goods manufacturers in Kansas over the past year, the state’s manufacturing sector has approximately 15 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Minnesota: For 17 straight months, Minnesota’s Business Conditions Index has remained above growth neutral. The index dipped to a healthy64.9 from March’s 66.1. Components of the index from the April survey of supply managers in the state were new orders at 70.0, production or sales at 73.3, delivery lead time at 64.1, inventories at 64.6, and employment at 52.4. “Despite impressive gains among durable goods and nondurable goods manufacturers in the state over the past year, Minnesota’s manufacturing sector has almost 10 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Missouri: The April Business Conditions Index for Missouri grew to 54.8 from 53.8 in March. Components of the survey of supply managers in the state for April were new orders at 55.2, production or sales at 56.3, delivery lead time at 57.5, inventories at 53.1, and employment at 52.1. “The state’s durable goods manufacturing sector, especially that tied to vehicle production, continues to expand at a healthy pace. Despite impressive gains among durable goods manufacturers over the past year, Missouri’s manufacturing sector has approximately 15 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Nebraska: After declining below growth neutral for the last three straight months of 2013, Nebraska’s overall index rose above 50.0 for the first four months of 2014. The index, a leading economic indicator from a survey of supply managers in the state expanded to 55.1 from 54.8 in March. Components of the index for April were new orders at 57.3, production or sales at 62.5, delivery lead time at 53.8, inventories at 51.6, and employment at 50.6. “Nondurable goods manufacturers, including ethanol producers are reporting healthy business conditions and are offsetting weaker conditions among durable goods producers. Despite gains among nondurable goods manufacturers over the past year, Nebraska’s manufacturing sector has approximately 6 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

North Dakota: North Dakota’s leading economic indicator slipped to a healthy 60.2 from March’s 60.3. Components of the overall index from the monthly survey of supply managers for April were new orders at 55.0, production or sales at 52.8, delivery lead time at 51.2, employment at 82.2, and inventories at 52.98. “Durable and nondurable goods manufacturing firms are expanding at a solid pace adding to the significant boost from energy linked firms. Despite positive gains among manufacturers in the state over the past year, North Dakota’s manufacturing sector has approximately 3.4 percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Oklahoma: The state’s leading economic indicator continues to point to healthy gains for the next three to six months. Oklahoma’s Business Conditions Index declined to a still respectable 54.8 from last month’s 59.5. Components of the April survey of supply managers in the state were new orders at 59.8, production or sales at 54.7, delivery lead time at 51.2, inventories at 53.2, and employment at 55.0. “Except for food processors in the state, nondurable goods manufacturers reported solid gains for the month. Despite gains among manufacturers in the state over the past year, Oklahoma’s manufacturing sector has approximately 10 percent fewer manufacturing workers today than shortly before the national recession began,” 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 68.1 and up from March’s 63.8. Components of the overall index for April were new orders at 69.0, production or sales at 87.7, delivery lead time at 43.9, inventories at 63.4, and employment at 76.7. “Durable and nondurable goods manufacturers in the state continue to add jobs and increase the hours worked for current employees. Despite impressive gains among manufacturers in the state over the past year, South Dakota’s manufacturing sector has approximately two percent fewer manufacturing workers today than shortly before the national recession began,” said Goss.

Survey results for May will be released on the first business day of next month, June 2.

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

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