Mid-American Economy
Mid-America Manufacturing Index Remains Below Growth Neutral
Manufacturing Job Losses Increase for Third Straight Month
August 2023 Survey Highlights:
• Overall index falls below growth neutral for a second straight month.
• Approximately 45% of supply managers expect a recession in the second half of 2023.
• Creighton University’s survey results indicate that contrary to the Federal Reserve consensus, a recession in 2023 is still “on the table.”
• Manufacturing employment in the region has decreased for three consecutive months.
• The wholesale inflation gauge for the month rose to 63.7 in August from 52.2 in July.
• Only 27% of supply managers expect positive growth for their firm in the second half of 2023.
• For the first half of 2023, compared to the same period in 2022, the region expanded manufacturing exports by 5.2%.
• Goss expects the Federal Reserve to make no change to short-term interest rates at their next meetings on Sept. 19-20.
OMAHA, Neb. (Sept. 1, 2023) — After climbing above growth neutral for five straight months, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell below the growth neutral threshold 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, increased to 49.5 in August from 46.1 in July.
“The Mid-America regional manufacturing economy is definitely losing momentum. Government data indicate that the regional manufacturing economy has lost jobs for the last three 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 Mid-America report is produced independently from the national ISM.
“Creighton University’s survey results indicate that contrary to the Federal Reserve consensus, a recession in 2023 is still ‘on the table.’ Approximately 45% of supply managers expect a recession in the second half of 2023,” said Goss.
Said one supply manger, “We are definitely slower this month than last month and year.”
“The rapid expansion in federal government spending will push the Federal Reserve to keep its foot on the economic brakes via raising short-term rates. I expect one more rate hike in quarter four of 2023 with no change at the Fed’s Sept. 19-20 meetings. Furthermore, I expect Federal Reserve Chair Jerome Powell to restate the Fed’s commitment to reducing the Fed’s balance sheet, which will put upward pressure on long-term interest rates,” said Goss.
Employment: The regional hiring gauge slumped below growth neutral to 47.7, but up from 45.6 in July. According to U.S. Bureau of Labor Statistics data, seasonally adjusted manufacturing employment in the region has decreased for three consecutive months. Creighton’s monthly survey results indicate these manufacturing job losses will increase in the months ahead.
“For the first half of 2023, Creighton’s monthly survey indicated steady employment growth with levels maintained due to manufacturers’ labor hoarding. However, employment readings over the past several months signal layoffs in the region,” said Goss.
As reported by one supply manager, “Why can’t we hire the people we need — why can’t the government allow us to hire the illegals they let in?”
Other August comments from supply managers were:
• “The dark times are upon us … inflation is a huge anchor on the overall economy and is the tax most people don’t even comprehend.”
• “The grocery market industry is still in a steady growth pattern for new and remodeled stores. Our business is manufacturing merchandising fixtures for the grocery industry. Looks pretty solid at least through the rest of 2023.”
• “Orders and shipments are down between 2023 and 2022.”
• “We are going to have to pay the piper at some point as we can't keep printing money and increasing interest rates and consumer prices without some significant consequences.”
• “There are markets with reduced sales but to call it a recession would be misleading.”
• “I've been waiting for this ‘recession’ since Obama was in office. I thought the ramped-up printing of money then would have caused hyper-inflation and with everything that's happened since it still hasn't. Since we don't have a free market anymore, I just don't know what to think.”
• “We are seeing mixed signals, with some industries such as RV's, lawn care, etc. slowing down, while others in the agriculture and construction industries seemingly not affected by a slowdown in the economy.”
Wholesale Prices: The wholesale inflation gauge for the month rose to 63.7 from July’s 52.2. Supply managers expect wholesale prices for the products and services their firms purchase to increase by approximately 5.0% over the next 12 months.
“Even with consumer inflation above their 2.0% target, I expect the Federal Reserve to make no change to their short-term interest rates at their September 19-20 meetings, but raise rates by 25 basis points (0.25%) in the last quarter of this year,” said Goss.
According to one supply manager, “Inflation is in labor, materials, transportation, fuel, etc. Everyone in the chain is raising prices and keeping them there.”
Confidence: Looking ahead six months, economic optimism as captured by the August Business Confidence Index slumped to 26.3 from July’s weak 32.6. “Approximately 45% of supply managers expect a recession in the next six months,” said Goss.
Inventories: The regional inventory index, reflecting levels of raw materials and supplies, expanded to 54.6 from July’s 52.3. “Manufacturing firms have been expanding inventory levels since February of this year,” said Goss.
Trade: Trade numbers were once again weak for the month with new export orders climbing to 39.3 from July’s 30.8. August imports increased to 41.2 from July’s 35.3.
Despite the recent downturn in exports, U.S. International Trade Association data indicate that the region expanded exports in the first half of 2023. Manufacturing exports expanded to $46.7 billion from $44.4 billion during this same time period in 2022, indicating growth of 5.2%.
Other Survey Components: New orders increased to 45.3 from 43.5 in July; the production or sales index rose to 47.8 from 41.3; and the speed of deliveries of raw materials and supplies climbed to 52.3 from July’s 47.3. The increase indicates an upturn in supply chain disruptions and delivery 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 August Business Conditions Index expanded to 59.5 from 54.6 in July. Components from the August survey of supply managers were: new orders at 46.3, production or sales at 48.0, delivery lead time at 57.0, inventories at 72.0 and employment at 74.2. According to U.S. International Trade Association data, Arkansas’ manufacturing exports expanded from $2.6 billion for the first half of 2022 to $2.7 billion for the same period in 2023, representing a growth rate of 0.6%. The state’s leading manufacturing export, transportation equipment, declined by 4.8% from 2022 to 2023.
Iowa: The state’s Business Conditions Index for August advanced to 47.9 from July’s 46.0. Components of the overall August index were: new orders at 46.6, production or sales at 46.3, delivery lead time at 48.4, employment at 48.7 and inventories at 49.5. According to U.S. International Trade Association data, Iowa’s manufacturing exports expanded from $7.7 billion for the first half of 2022 to $8.6 billion for the same period in 2023, representing a growth rate of 11.8%. The state’s leading manufacturing export, machinery, soared by 28.5% from 2022 to 2023.
Kansas: The Kansas Business Conditions Index for August increased to 42.3 from 38.9 in July. Components of the leading economic indicator from the monthly survey of supply managers for August were: new orders at 45.0, production or sales at 46.7, delivery lead time at 50.3, employment at 31.7 and inventories at 37.7. According to U.S. International Trade Association data, Kansas’ manufacturing exports expanded from $5.5 billion for the first half of 2022 to $6.0 billion for the same period in 2023, representing a growth rate of 7.7%. The state’s leading manufacturing export, transportation equipment, soared by 16.9% from 2022 to 2023.
Minnesota: The August Business Conditions Index for Minnesota improved to 46.0 from 43.3 in July. Components of the overall August index were: new orders at 45.3, production or sales at 46.9, delivery lead time at 51.8, inventories at 45.1 and employment at 40.9. According to U.S. International Trade Association data, Minnesota’s manufacturing exports expanded from $11.5 billion for the first half of 2022 to $11.6 billion for the same period in 2023, representing a growth rate of 0.2%. The state’s leading manufacturing export, computers and electronic products, expanded by 8.7% from 2022 to 2023.
Missouri: Missouri’s August Business Conditions Index climbed to 59.5 from 52.6 in July. Components of the overall index from the survey of supply managers for August were: new orders at 46.3, production or sales at 48.0, delivery lead time at 57.0, inventories at 72.0 and employment at 74.1. According to U.S. International Trade Association data, Missouri’s manufacturing exports expanded from $7.2 billion for the first half of 2022 to $7.7 billion for the same period in 2023, representing a growth rate of 6.3%. The state’s leading manufacturing export, transportation equipment, soared by 28.5% from 2022 to 2023.
Nebraska: For a third straight month, Nebraska’s Business Conditions Index slumped below the growth neutral threshold. The overall reading for August increased to 44.4 from 40.4 in July. Components of the index from the monthly survey of supply managers for August were: new orders at 45.2, production or sales at 46.8, delivery lead time at 51.2, inventories at 41.9 and employment at 36.9. According to U.S. International Trade Association data, Nebraska’s manufacturing exports dropped from $3.6 billion for the first half of 2022 to $3.5 billion for the same period in 2023, representing a decline of 2.4%. The state’s leading manufacturing export, processed food, slumped by 12.0% from 2022 to 2023.
North Dakota: After two straight months of below growth neutral readings, the state’s Business Conditions Index soared to a healthy 58.6 in August from 49.5 in July. Components of the overall index for August were: new orders at 46.2, production or sales at 47.9, delivery lead time at 56.7, employment at 71.9 and inventories at 70.2. According to U.S. International Trade Association data, North Dakota’s manufacturing exports expanded from $2.0 billion for the first half of 2022 to $2.8 billion for the same period in 2023, representing a growth rate of 37.5%. The state’s leading manufacturing export, petroleum and petroleum products, soared by 64.4% from 2022 to 2023.
Oklahoma: Oklahoma’s Business Conditions Index slumped below growth neutral for a third straight month. The August index increased to 46.9 from 41.1 in July. Components of the overall August index were: new orders at 45.4, production or sales at 47.0, delivery lead time at 52.1, inventories at 46.8 and employment at 43.0. According to U.S. International Trade Association data, Oklahoma’s manufacturing exports contracted from $3.2 billion for the first half of 2022 to $2.9 billion for the same period in 2023, representing a decline of 9.0%. The state’s leading manufacturing export, machinery, contracted by 6.1% from 2022 to 2023.
South Dakota: The August Business Conditions Index for South Dakota declined to 43.4 from 43.9 in July. Components of the overall index were: new orders at 45.1, production or sales at 46.7, delivery lead time at 50.8, inventories at 49.9 and employment at 43.0. According to U.S. International Trade Association data, South Dakota’s manufacturing exports expanded from $1.1 billion for the first half of 2022 to $1.2 billion for the same period in 2023, representing a growth rate of 7.6%. The state’s leading manufacturing export, processed food, declined by 3.4% from 2022 to 2023.
Survey results for the month of September will be released on Oct. 2, 2023, the first business day of the month.
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For historical data and forecasts visit our website https://www.creighton.edu/economicoutlook/