Mid-American Economy

Mid-America Wholesale Prices Soar to Another Record High: Economic Outlook Plummets

July survey highlights:

  • Creighton’s regional Business Conditions Index climbed into a range indicating very strong growth for the next three to six months.
  • Confidence index plummets to lowest level in five months.
  • The wholesale inflation gauge surged to another record high.
  • More than half of supply managers expect soaring input prices to be pushed off on to their customers.
  • Almost 38% of supply managers expect rocketing input prices to be absorbed by their company in the form of lower profits.
  • On average, supply managers expect price for their companies’ prices to advance by another 7.7%, over the next 12 months.

OMAHA, Neb. (Aug. 2, 2021) – Since declining to a record low in April of last year, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, moved above growth neutral for 14 of the last 15 months.

Overall index: The Business Conditions Index, which uses the identical methodology as the national ISM, ranges between 0 and 100, dipped to a still strong 73.1 from June’s 73.5. However, as in previous months, between 80% and 90% of manufacturing supply managers report that labor shortages and supply bottlenecks continue to restrain growth.

“Creighton’s monthly survey results indicate the region is adding manufacturing business activity at a very healthy pace, and that regional growth will remain strong. Absent supply bottlenecks and labor shortages, that growth would be even stronger,” 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.  

Employment: The regional employment index remained above growth neutral for July rising to 67.2, its highest level in more than two decades, from 61.7 in June. “Even with strong manufacturing job growth, the region has yet to recover all job losses from the pandemic. The latest U.S. Bureau of Labor Statistics data indicate that current regional nonfarm employment is down by 540,000 jobs, or 3.9%, compared to pre-Covid-19 levels,” said Goss.

Even with healthy job growth for the month, firms continue to report difficulties in finding and hiring new workers. As stated by one supply manager, “Despite hiring incentives it is very difficult to attract anyone, we are turning business away due to capacity limitations.”

Wholesale Prices: The wholesale inflation gauge for the month surged to a record high 98.7 from June’s 98.4, the previous record high.

“At the wholesale level, Creighton’s survey is tracking higher and higher inflationary pressures. Commodity prices are up approximately 19.5% over the last 12 months according to U.S. Bureau of Labor Statistics data. Supply managers in Creighton’s June survey expect prices for their firm’s products to advance by 7.7% for the next 12 months,” said Goss.

As stated by one survey manager, “Price increases are rampant. Air filters have had three price increases in the last year. Delivery is taking 30-60 days.”

In terms of the burden of soaring input prices, 58.6% of supply managers expect the gain to be borne primarily by their customers while 37.9% expect company profits to absorb most of the hit, and only 3.5% anticipate that the increase will result in lower wages for workers.

Confidence: Looking ahead six months, economic optimism, as captured by the July Business Confidence Index, slumped to 53.6 from June’s 60.8 and May’s very strong 88.6.

“Supply bottlenecks, rapidly rising prices and labor shortages pushed economic confidence among manufacturing supply managers significantly lower for the month,” said Goss.

One supply manger said, “There are so many economic cross currents. It is very difficult to forecast beyond six months.”

Said another supply manager, “The US economy is only going to get worse under the Biden Administration as they push their global agenda and new world order.”

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, climbed to 70.7 from last month’s 67.9.

Trade: Despite supply chain bottlenecks, regional trade numbers were solid for the month. The new export orders index sank to a very healthy 63.9 from June’s 72.2. An expanding domestic manufacturing sector boosted July’s import reading to 65.3, which was up from June’s 52.4.

Other survey components: Other survey components of the June Business Conditions Index were: new orders slipped to 73.5 from 75.9 in June; the production or sales index declined to 67.9 from June’s 78.4; and the index reading for the speed of deliveries of raw materials and supplies rose to 84.5 from June’s 83.9. A higher reading indicates slower deliveries.

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 since 1931 by the Institute for Supply Management (ISM), formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

Arkansas: The July Business Conditions Index for Arkansas rose to 71.2 from 68.6 in June. Components from the July survey of supply managers were: new orders at 72.7, production or sales at 68.7, delivery lead time at 79.9, inventories at 64.4, and employment at 70.3. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Arkansas rose 6.5% over the past 12 months. Among the nine Mid-America states, this growth ranked fourth,” said Goss.

Iowa: Iowa’s Business Conditions Index for July decreased to 67.9 from 69.5 in June. Components of the overall June index were: new orders at 72.5 production, or sales, at 65.2, delivery lead time at 79.0, employment at 60.9, and inventories at 61.9. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Iowa rose 7.9% over the past 12 months. Among the nine Mid-America states, this growth ranked second,” said Goss.

Kansas: The Kansas Business Conditions Index for July declined to 73.3 from 76.9 in June. Components of the leading economic indicator from the monthly survey of supply managers were: new orders at 73.6, production or sales at 66.0. delivery lead time at 84.3, employment at 66.9, and inventories at 75.9. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Kansas declined 0.9% over the past 12 months. Among the nine Mid-America states, this growth ranked ninth, or last,” said Goss.

Minnesota: The July Business Conditions Index for Minnesota climbed to 77.4 from 73.7 in June. Components of the overall July index were: new orders at 76.3, production or sales at 69.1, delivery lead time at 96.6, inventories at 64.4, and employment at 80.9. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Minnesota rose 2.8% over the past 12 months. Among the nine Mid-America states, this growth ranked seventh,” said Goss.

Missouri: The July Business Conditions Index for Missouri rose to 71.3 from 67.7 in June. Components of the overall index from the survey of supply managers for July were: new orders at 73.2, production or sales at 65.5, delivery lead time at 82.3, inventories at 70.8, and employment at 64.7. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Missouri rose 6.2% over the past 12 months. Among the nine Mid-America states, this growth ranked fifth,” said Goss.

Nebraska: Nebraska’s overall index for July dropped to 70.4 from 74.5 in June. Components of the index from the monthly survey of supply managers for July were: new orders at 73.1, production or sales at 65.3, delivery lead time at 81.5, inventories at 68.6, and employment at 63.8. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Nebraska rose 5.2% over the past 12 months. Among the nine Mid-America states, this growth ranked sixth,” said Goss.

North Dakota: The July Business Conditions Index for North Dakota fell to 74.0 from June’s 75.1. Components of the overall index for July were: new orders at 74.7, production or sales at 67.2, delivery lead time at 89.0, employment at 70.1, and inventories at 68.8. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in North Dakota rose 7.4% over the past 12 months. Among the nine Mid-America states, this growth ranked third,” said Goss.

Oklahoma: Oklahoma’s Business Conditions Index expanded above growth neutral in July. However, the overall index dipped to 72.7 from 73.6 in June. Components of the overall June index were: new orders at 73.7, production or sales at 66.1, delivery lead time at 84.7, inventories at 77.1, and employment at 62.1. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Oklahoma rose 9.9% over the past 12 months. Among the nine Mid-America states, this growth ranked first,” said Goss.

South Dakota: The July Business Conditions Index for South Dakota fell to 72.5 from 74.0 in June. Components of the overall index from the July survey of supply managers in the state were: new orders at 73.5, production or sales at 65.8, delivery lead time at 83.5, inventories at 73.8, and employment at 66.0. “According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in South Dakota rose 2.4% over the past 12 months. Among the nine Mid-America states, this growth ranked eighth,” said Goss.

Survey results for July will be released on Sept. 1, 2021, the first business day of the month.