Mid-America Economy Rebounds to Six-Month High:
Wholesale Inflation Soars Even Higher
February Survey Highlights:
• The regional overall index, or business barometer, rose to its highest level since July 2022.
• The regional wholesale inflation gauge rocketed to a six-month high.
• Creighton’s monthly wholesale price index points to a 0.50% (50 basis points) rate hike at the Federal Reserve’s March 21-22 meetings.
• Four of ten supply managers surveyed expect a national recession in 2023.
• Due to shortages and excessive inflation, almost one half of firms reported raising entry level wages above the inflation rate.
OMAHA, Neb. (March 1, 2023) — After falling below growth neutral for three straight months, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rebounded to its highest level since July of last year.
Overall Index: The Business Conditions Index, which uses the identical methodology as the national Institute for Supply Management and ranges between 0 and 100 with 50.0 representing growth neutral, climbed to 56.1 from 47.0 in January.
The Mid-America report is produced independently from the national ISM.
“After flashing recession warning signals for three consecutive months, Creighton’s monthly survey of manufacturing supply managers rebounded to its highest level since July of last year,” 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.
“While it’s too early to tell if this is an end to the downward trend, it was certainly promising on the growth front. However, the soaring inflation reading serves as a very negative signal for financial markets and the Federal Reserve,” said Goss.
On the other hand, four of ten supply managers surveyed expect a national recession in 2023.
Employment: After dropping below growth neutral for three of the last four months, the regional hiring gauge rose above the growth neutral threshold to a tepid 52.8 from 46.3 in January.
Due to labor shortages and excessive inflation, almost one half of firms reported raising entry level wages to match the inflation rate, while another 20% reported raising entry level wages above the rate of inflation to recruit new employees.
As stated by one supply manger, “The new hires coming in, compared to the seasoned pro pay gap, has always been a struggle…it is even worse now. We will have to adjust incumbents to protect our culture. Difficult tightrope to walk.”
Other January comments from supply managers were:
• “Contraction in fourth quarter was substantial. Similar contraction in first quarter 2023 to date. Perhaps excess inventories throughout supply chain have been cleared out. Not sure where the new demand level will be.”
• “I do see a slowing down on new orders coming in. I'm hoping this is just a small setback and not the trend.”
• “We are still having a hard time finding workers even with increased starting wages. Our operation is in a small community that has a major drug company and a large refinery, so that has always hampered our potential employee pool.”
• “2022 was one of the best years we've had for sales growth and earnings. 2023 will take tremendous focus by all our functions if we are expected to provide the same or similar results. Our government could do a better job at reducing costs and removing hurdles relating to business, trade, currency, etc.”
Wholesale Prices: The wholesale inflation gauge for the month soared to 80.6 from January’s 74.1 and December’s 52.1.
“Much like the recent rapid expansion in wholesale price inflation at the national level, Creighton’s survey is pointing to greater input price pressures at the producer level, or what is often referred to as the wholesale price index,” said Goss.
“As a result of recent elevation in inflationary pressures at the wholesale level, I expect the Federal Reserve’s rate setting committee to announce a more aggressive rate hike of 50 basis points (0.50%) at its March 21-22 meetings to combat elevated inflation,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the February Business Confidence Index, increased to a very weak 38.1 from 25.0 in January. “Supply managers named supply delays and disruptions as their firm’s greatest threats for 2023,” said Goss.
Inventories: The regional inventory index, reflecting levels of raw materials and supplies, advanced to a strong 58.4 from January’s 38.9. “Manufacturing firms have begun returning inventory to normal levels. This is stimulative of growth,” said Goss.
Trade: Trade numbers were down significantly for February with export orders falling to 35.0 from 42.8 in January. Additionally, firms continued to report weak imports due to a weakening regional economy. The February import reading did rise to a weak 42.3 from 34.3 in January.
Other Survey Components: new orders increased to 55.5 from 44.5 in January; the production, or sales index, climbed to 58.3 from 50.0 in January; and the speed of deliveries of raw materials and supplies expanded slightly to 55.6 from January’s 55.5. The increase indicates greater supply chain disruptions with more delivery bottlenecks for the month.
The Creighton Economic Forecasting Group has conducted a 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 February Business Conditions Index rose to 52.6 from 39.5 in January. Components from the February survey of supply managers were: new orders at 54.2, production or sales at 53.2, delivery lead time at 47.5, inventories at 55.8, and employment at 52.3. Both durable and non-durable manufacturers reported slow to no growth for the last several months.
Iowa: The state’s Business Conditions Index for February climbed to 53.2 from January’s 47.0. Components of the overall February index were: new orders at 55.7, production or sales at 54.5, delivery lead time at 54.1, employment at 45.3, and inventories at 52.8. Machinery manufacturing continues to expand but at a slow pace while non-durable goods manufacturers, including food processes, detailed expanding economic conditions.
Kansas: The Kansas Business Conditions Index for February climbed to 65.8 from January’s regional high, 56.7. Components of the leading economic indicator from the monthly survey of supply managers for February were: new orders at 61.2, production or sales at 61.1, delivery lead time at 58.7, employment at 72.4, and inventories at 75.4. Durable equipment manufacturers, especially transportation equipment and parts producers, have expanded at a solid pace over the last several months. Non-durable goods manufacturers, including food processors, are advancing at a solid pace.
Minnesota: The February Business Conditions Index for Minnesota improved to 59.6 from 52.2 in January. Components of the overall February index were: new orders at 56.3, production or sales at 59.6, delivery lead time at 56.7, inventories at 65.3, and employment at 60.2. Durable goods manufacturers, including computer component producers, as well as navigation equipment producers, are growing at a positive clip. On the other hand, non-durable goods manufacturers, including food processors, are experiencing slow to no growth over the last several months.
Missouri: The state’s February Business Conditions Index climbed to 52.7 from January’s 42.1. Components of the overall index from the survey of supply managers for February were: new orders at 55.2, production or sales at 56.2, delivery lead time at 51.8, inventories at 41.3 and employment at 58.7. Manufacturers in the state are experiencing positive growth with strong job gains. Food processors, computer and electronic manufacturers, and transportation equipment producers are experiencing solid growth over the past several months.
Nebraska: After four consecutive months of below-growth neutral readings, Nebraska’s Business Conditions Index has now climbed above the growth-neutral threshold for a second straight month. The overall reading in February increased to 56.7 from 55.7 in January. Components of the index from the monthly survey of supply managers for February were: new orders at 56.7, production or sales at 60.8, delivery lead time at 58.3, inventories at 73.2, and employment at 61.2. Durable goods manufacturers, including metal fabricators and food processors, pushed growth higher for the month.
North Dakota: After two straight months of below-growth neutral readings for the state, North Dakota’s February Business Conditions Index climbed above the threshold to 53.3 from 38.1 in January. Components of the overall index for February were: new orders at 54.9, production or sales at 51.2, delivery lead time at 50.3, employment at 51.2, and inventories at 55.1. Durable goods and non-durable goods producers, including food processors, are experiencing solid growth in economic activity.
Oklahoma: Oklahoma’s Business Conditions Index advanced in February to a reading above growth neutral. The February index rose to 54.9 from 43.3 in January. Components of the overall February index were: new orders at 55.4, production or sales at 56.8, delivery lead time at 57.6, inventories at 45.4, and employment at 59.1. Manufacturing industries, both durable and non-durable goods producers, are experiencing solid growth in the state.
South Dakota: The February Business Conditions Index for South Dakota declined to a weak 49.7 from January’s solid 55.2. Components of the overall index from the February survey of supply managers in the state were: new orders at 57.2, production or sales at 56.8, delivery lead time at 52.6, inventories at 45.4, and employment at 36.4. Durable goods producers in the state are outperforming non-durable goods manufacturers in the state.
Survey results for March will be released on April 3, 2023, the first business day of the month.