Mid-American Economy

Mid-America Business Index Falls for February: Four in Ten Supply Managers Report Negative Coronavirus Impacts

February survey highlights:

  • The overall index moved above growth neutral for a third consecutive month.
  • Fully 40% of supply managers reported negative impacts from the coronavirus.
  • Approximately 27% indicated that the coronavirus had forced their firm to cease or reduce international buying.
  • Roughly 24% stated that the coronavirus had pushed their firm to switch to domestic vendors for certain inputs.
  • The employment gauge fell below growth neutral for the fifth time in the last seven months.
  • Due to coronavirus supply constraints, the import reading plummeted for the month.
  • Over the last 12 months, the regional manufacturing sector experienced job losses with growth at minus 0.1% compared to a stronger, but tepid 0.5%, for the U.S.

OMAHA, Neb. (March 2, 2020) – The February Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, sank for the month, but remained above growth neutral.

Overall index: This is the third straight month the overall reading has remained above growth neutral 50.0. The Business Conditions Index, which ranges between 0 and 100, tumbled to 52.8 from January’s 57.2, its highest level since March 2019.

“This month’s softer reading plus the mounting negative impacts from the coronavirus should concern policymakers regarding the strength of the economy. Fully 40% of supply managers reported negative impacts from the coronavirus. The coronavirus forced 27% of firms to cease, or reduce international buying,” 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.  

Said one supply manager, “The coronavirus has caused us to dual source, but not everything is domestic/and China. Most are India and China.”

Another supply chain manager indicated that, “(My firm is) seeing some lead times pushed out for electronic components due to COVID-19. Most issues stem from production and logistics constraints in the Shezhen province & Hong Kong.”

Employment:  The February employment index declined to 46.4 from January’s 53.8. For February, trade constraints, the lack of available workers, and the coronavirus produced job losses for the manufacturing sector of the regional economy.

“Over the past 12 months, due the shortage of workers, regional manufacturing job growth was minus 0.1% compared to much stronger 0.5% for U.S. manufacturing job gains. The shortage of workers did, however, as expected, serve to push average hourly wage growth up by 4.5% compared to a lower 2.9% for the U.S. manufacturing sector over the same 12-month period,” said Goss.

Wholesale Prices: The wholesale inflation gauge for the month indicated only modest wholesale inflationary pressures with a wholesale price index of 61.3 which was up from 58.8 in January.

As detailed by one supply manager, “An unusual juxtaposition ¬– anticipating significant growth alongside of soft commodity prices.”

Confidence: Looking ahead six months, economic optimism, as captured by the February Business Confidence Index, slumped to 51.4 from January’s 58.8.

“The emergence of the coronavirus offset the positive confidence impact of the recent passage of the U.S. Canada, Mexico trade agreement (USMCA) and Phase I of the trade agreement with China,” said Goss.

Reported one supply manager, “We consider coronavirus as a short-term issue, not impacting long term buy decisions, only impacting short term buy decisions.”

Inventories: Companies reduced inventories of raw materials and supplies for the month with an inventory index of 48.7, down from last month’s 58.4.

According to one supply manager “It is too early for us to know yet what impact the coronavirus will have on our business as our inventory is high on Chinese product due to standard buying practices before CNY (the Chinese New Year).”

Trade: The regional trade numbers were mixed with new export orders increasing to a solid 58.0 from January’s 52.1. On the other hand, the evolving coronavirus reduced Asian buying by supply mangers as the import index fell to 40.4 from January’s 46.3.

Approximately 24% said that the coronavirus had pushed their firm to switch to domestic vendors for certain inputs. One in five supply managers reported that the coronavirus has forced their firm to rethink its sources of supplies and raw materials.

Other survey components: Other components of the February Business Conditions Index were new orders at 62.9, up from January’s 62.1; the production or sales index sank to 53.7 from January’s 57.9; and speed of deliveries of raw materials and supplies index at 52.5 declined from last month’s 53.8.

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 February Business Conditions Index for Arkansas sank to 52.7 from January’s 59.0. Components of the index from the monthly survey of supply managers were new orders at 58.9, production or sales at 52.1, delivery lead time at 53.5, inventories at 51.5, and employment at 47.7. “Over the last 12 months, Arkansas manufacturing employment growth ranked number one in the nine-state region expanding by 1.2%, while state manufacturing wage growth ranked number five in the region, growing by 4.6%,” said Goss.

Iowa: Iowa’s overall Business Conditions Index has climbed above the growth-neutral threshold for the last three months with a February reading of 53.1, down from 55.7 in January. Components of the overall index from the monthly survey of supply managers were new orders at 59.9, production or sales at 54.0, delivery lead time at 52.3, employment at 51.3, and inventories at 48.1. “Over the last 12 months, Iowa manufacturing employment growth ranked number four in the nine-state region expanding by 0.2%, while state manufacturing wage growth ranked number nine in the region, growing by 2.9%,” said Goss.

Kansas: The Kansas Business Conditions Index for February declined to 54.7 from January’s 58.4. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 66.4, production or sales at 52.7, delivery lead time at 53.1, employment at 51.1, and inventories at 50.3. “Over the last 12 months, Kansas manufacturing employment growth ranked number five in the nine-state region expanding by 0.19%, while state manufacturing wage growth ranked number four in the region, growing by 5.5%,” said Goss.

Minnesota: The February Business Conditions Index for Minnesota sank to 53.3 from January’s 57.9. Components of the overall February index from the monthly survey of supply managers were new orders at 64.9, production or sales at 53.1, delivery lead time at 52.8, inventories at 49.6, and employment at 46.1. “Over the last 12 months, Minnesota manufacturing employment growth ranked number eight in the nine-state region contracting by minus 0.5%, while state manufacturing wage growth ranked number two in the region growing by 6.3%,” said Goss.

Missouri: The February Business Conditions Index for Missouri slumped to 51.1 from January’s 56.2. Components of the overall index from the survey of supply managers were new orders at 60.0, production or sales at 54.4, delivery lead time at 52.0, inventories at 43.3, and employment at 45.7. “Over the last 12 months, Missouri manufacturing employment growth ranked number six in the nine-state region expanding by 0.1%, while state manufacturing wage growth ranked number seven in the region, growing by 3.2%,” said Goss.

Nebraska: After falling below growth neutral in November, Nebraska’s Business Conditions Index has now been above the threshold for three consecutive months. The state’s overall index for February tumbled to 54.7 from 58.8 in January. Components of the index from the monthly survey of supply managers were new orders at 68.8, production or sales at 52.1, delivery lead time at 51.4, inventories at 53.5, and employment at 47.7. “Over the last 12 months, Nebraska manufacturing employment growth ranked number three in the nine-state region expanding by 0.8%, while state manufacturing wage growth ranked number three in the region, growing by 5.5%,” said Goss.

North Dakota: The February Business Conditions Index for North Dakota expanded to 52.7 from 52.0 in January. Components of the overall index were new orders at 53.4, production or sales at 63.8, delivery lead time at 52.7, employment at 44.4, and inventories at 49.1. “Over the last 12 months, North Dakota manufacturing employment growth ranked number seven in the nine-state region with no job gains over the period, while state manufacturing wage growth ranked number eight in the region, growing by 3.1%,” said Goss.

Oklahoma: For only the second time since October, Oklahoma’s Business Conditions Index remained above growth neutral. The overall index for February slid to 51.5 from January’s 52.2. Components of the overall February index were new orders at 58.7, production or sales at 54.7, delivery lead time at 46.8, inventories at 51.8, and employment at 45.4. “Over the last 12 months, Oklahoma manufacturing employment growth ranked number nine the nine-state region contracting by minus 2.5%, while state manufacturing wage growth ranked number six in the region growing by 3.3%,” said Goss.

South Dakota: The February Business Conditions Index for South Dakota slid to 54.1 from January’s regional high 59.3. Components of the overall index from the February survey of supply managers in the state were new orders at 69.0, production or sales at 52.1, delivery lead time at 50.1, inventories at 47.7, and employment at 51.6. “Over the last 12 months, South Dakota manufacturing employment growth ranked number two in the nine-state region expanding by 0.81%, while state manufacturing wage growth ranked number one in the region, growing by 9.1%,” said Goss.

Survey results for March will be released on the first business day, April 1.