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Mid-American Economy

Mid-America Economy Signals Rising Risk of 2023 Recession:
Wholesale Inflation Gauge Falls to 32-Month Low

December Survey Highlights:   

• For the first time since the early days of the pandemic in May 2020, the overall index, or business barometer, plummeted below growth neutral for a second straight month, pointing to higher recession risk for 2023. 
• The regional wholesale inflation gauge fell to a 32-month low. 
• The overall index, or business barometer, has now fallen seven of the past nine months. 
• Approximately 60% of supply managers expect the economy to slump into a recession in 2023. 
• 2022 region-in-review, top-to-bottom economic performers: No. 1 South Dakota, No. 2 Minnesota, No. 3 Nebraska, No. 4 Kansas, No. 5 Oklahoma, No. 6 Iowa, No. 7 Missouri, No. 8 North Dakota and No. 9 Arkansas. 
• Due to labor shortages, approximately 63% of firms with job openings reported shortages of applicants.
• Compared to pre-pandemic levels, the current regional labor force remains down by approximately 213,000 workers, or 1.5%.

OMAHA, Neb. (Jan. 3, 2023) — The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell below growth neutral for a second straight month.

Overall Index: The Business Conditions Index, which uses the identical methodology as the national Institute for Supply Management (ISM) and ranges between 0 and 100 with 50.0 representing growth neutral, sank to 47.1 from 48.0 in November.

The Mid-America report is produced independently from the national ISM.

“Creighton’s monthly survey of manufacturing supply managers is flashing recession warnings for 2023. Not since April and May of 2020, the middle of the 2020 recession, has the overall index fallen below growth neutral for two straight months,” said Ernie Goss, PhD, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.  

“The overall Business Conditions Index has now declined for seven of the past nine months. Approximately 60% of supply managers expect the economy to slump into a recession in 2023,” said Goss. 

Employment: Despite solid growth in monthly economic activity over the past several months, manufacturers in the region have added jobs at only a modest pace. Compared to pre-pandemic levels, the regional current labor force remains down approximately 213,000 workers or 1.5%. The median regional labor force participation rate is currently 67.7% compared to 68.4% in February 2020.

After dropping below growth neutral for October and November, the December employment index climbed to 54.2 from 45.0 in November and 46.3 in October.

“Due to labor shortages, approximately 63% of firms with job openings reported shortages of applicants,” said Goss.

Other November comments from supply managers were:

• “The supply chain was demanding and inventorying more than actual needs.”
• “Eventually excessive price (gouging) will be corrected as well. Classic recession.”
• “Another year done but to be remembered in the annuls of history as the worst ever!  Supply chain disruptions, labor shortages, price increases, extended lead-times, poor product quality, ocean freight costs, Coronavirus shutdowns, etc.”

Wholesale Prices: The wholesale inflation gauge for the month dropped to 52.1, indicating modest inflation pressure, down from 72.5 in November. This is the lowest inflation reading since May 2020. 

“As a result of moderating inflationary pressures, I expect the Federal Reserve to announce a more restrained rate hike of 25 basis points (0.25%) to combat inflation at its next meeting on Jan. 31/Feb. 1,” said Goss.

Confidence: Looking ahead six months, economic optimism as captured by the December Business Confidence Index sank to a very weak 23.0 from 25.0 in November. “Confidence indices for each month in 2022, all below growth neutral, are the worst string of readings since the 2008-09 recession,” said Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, rose to 52.1 from November’s 45.5. “After months of stockpiling inventories, manufacturing firms have begun returning inventory to normal levels,” said Goss.

According to one supply manager, “Excess demands and excess inventories are now being corrected.”

Trade: Trade numbers were down for December with export orders falling to 43.3 from 50.0 in November. Additionally, firms continue to report weak imports due to a weakening regional economy. The December reading dropped to 36.8 from November’s 39.3.

Other Survey Components: New orders sank to 37.6 from 47.5 in November; the production, or sales index, slumped to 39.6 from 47.4 in November; and the speed of deliveries of raw materials and supplies slipped to 52.1 from November’s 52.5. This lower reading indicates a reduction in supply chain disruptions with fewer bottlenecks for the month.

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.

Arkansas: The state’s December Business Conditions Index sank below growth neutral to 41.6 from 52.4 in November. Components from the December survey of supply managers were: new orders at 38.4, production or sales at 36.4, delivery lead time at 47.1, inventories at 46.9 and employment at 39.4. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 1.9 percentage points lower than its pre-pandemic level. This indicates that currently 25,693 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Iowa: The state’s Business Conditions Index for December fell to 47.8 from November’s 49.8. Components of the overall December index were: new orders at 40.2, production or sales at 38.7, delivery lead time at 50.9, employment at 48.3 and inventories at 46.9. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 2.0 percentage points lower than its pre-pandemic level. This indicates that currently 34,228 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Kansas: The Kansas Business Conditions Index for December climbed to 50.1 from November’s 48.2. Components of the leading economic indicator from the monthly survey of supply managers for December were: new orders at 36.8, production or sales at 40.1, delivery lead time at 53.4, employment at 63.8 and inventories at 56.5. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 0.7 percentage points lower than its pre-pandemic level. This indicates that currently 10,493 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Minnesota: The December Business Conditions Index for Minnesota improved slightly to 49.7 from 48.8 in November. Components of the overall December index were: new orders at 36.7, production or sales at 40.0, delivery lead time at 53.2, inventories at 55.8 and employment at 62.7. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 2.9 percentage points lower than its pre-pandemic level. This indicates that currently 89,064 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Missouri: The state’s Business Conditions Index fell below growth neutral for December with a reading of 43.6, down from 47.2 in November. Components of the overall index from the survey of supply managers for December were: new orders at 36.3, production or sales at 38.5, delivery lead time at 50.7, inventories at 45.9 and employment at 46.7. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 1.5 percentage points lower than its pre-pandemic level. This indicates that currently 45,945 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Nebraska: For a fourth consecutive month, Nebraska’s Business Conditions Index fell below growth neutral. The overall reading increased to 49.9 in December from 42.8 in November. Components of the index from the monthly survey of supply managers for December were: new orders at 36.8, production or sales at 40.1, delivery lead time at 53.3, inventories at 56.2 and employment at 63.3. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 0.2 percentage points lower than its pre-pandemic level. This indicates that currently 2,127 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

North Dakota: After three straight months of readings above growth neutral, the North Dakota Business Conditions Index sank below the growth neutral threshold to 45.8 in December from November’s reading of 53.5. Components of the overall index for December were: new orders at 36.5, production or sales at 39.1, delivery lead time at 51.5, employment at 52.3 and inventories at 49.4. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 0.9 percentage points lower than its pre-pandemic level. This indicates that currently 3,660 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

Oklahoma: Oklahoma’s Business Conditions Index declined in December to a level pointing to rising potential for a recession. Even though the December index moved higher, it stood at a weak reading of 40.2, up from 39.8 in November. Components of the overall December index were: new orders at 38.8, production or sales at 37.0, delivery lead time at 48.1, inventories at 36.6 and employment at 30.4. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 0.1 percentage points lower than its pre-pandemic level. This indicates that currently 1,882 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.

South Dakota: The December Business Conditions Index for South Dakota expanded to a regional high of 57.3 from 55.4 in November. Components of the overall index from the December survey of supply managers in the state were: new orders at 37.2, production or sales at 41.9, delivery lead time at 56.3, inventories at 68.3 and employment at 82.9. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is unchanged from its pre-pandemic level. This indicates that currently few individuals in the state remain out of the workforce.

Survey results for January will be released on February 1, 2023, the first business day of the month.