Mid-American Economy

Mid-America Business Index Climbs Again: Confidence Rises from USMCA and Phase 1 Signing

January survey highlights:

  • The overall index moved above growth neutral for the third time in the past four months, rising to its highest reading since March 2019.

  • Hiring index rose above growth neutral.

  • January passage of the USMCA and Phase 1 of the Chinese trade agreement boosted the regional business confidence index. 

  • Approximately 56% expect signing of USMCA and Phase 1 of the Chinese agreement to have a positive impact on business prospects.

  • Due to the trade war, 28.2% of supply managers report changing international vendors for purchases.

OMAHA, Neb. (Feb. 3, 2020) – The January 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 a second straight month.

Overall index: This is the third time in the past four months the overall reading has climbed above growth neutral 50.0. The Business Conditions Index, which ranges between 0 and 100, rose to a solid 57.2, its highest level since March 2019, and up from December’s 50.6.

This month’s very solid reading, plus January’s signing of USMCA and Phase 1 trade agreement with China, bode well for the regional manufacturing economy. However, the survey was conducted before the significant negative outcomes from the coronavirus were reported.

“The negative impacts from this virus could place significant negative pressure on the regional economy in the weeks ahead,”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 three-day extension of CNY (Chinese New Year) due to coronavirus may affect future production dates.”

Employment:  The January employment index increased to 53.8 from December’s four-year low of 45.6. In past months, trade constraints combined with the lack of available workers continued to constrain job growth in the region. In December, seven of 10 supply managers indicated that finding and hiring qualified workers was the greatest 2020 challenge for their firms.

“However, January’s positive employment reading was a positive and unexpected outcome,” said Goss.

The weakness in the region’s manufacturing and agriculture sector has spilled over into the broader regional economy. Over the past 12 months, the Mid-America region has added jobs at a 0.6% pace, or less than half the 1.4% rate of the U.S. economy.

Wholesale Prices: The wholesale inflation gauge for the month indicated only modest wholesale inflationary pressures with a wholesale price index of 58.8, up from 57.6 in December.

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 January Business Confidence Index, climbed to 58.8 from December’s 57.6.

“January passage of the U.S. Canada, Mexico trade agreement (USMCA) and Phase I of the trade agreement boosted the regional business confidence index for the month,” said Goss.

Inventories: Companies expanded inventories of raw materials and supplies for the month and at a faster pace than in December. The inventory index advanced to 58.4 from last month’s 50.1.

Trade: The regional trade numbers were mixed with new export orders increasing to a tepid 52.1 from December’s weak 43.5. Regional imports sank to 46.3 from December’s 52.0.

January passage of the USMCA and Phase I of the Chinese trade agreement boosted the regional business confidence index for the month. Due to the trade war, 28.2% of supply managers report changing vendors in terms of international buying.

Approximately 56% of supply managers expect USMCA and Phase 1 Chinese agreement to have a positive impact on their business prospects.

One survey respondent said, “I see long term benefit from the use of tariffs in current foreign policy development. I see the current administration as very pragmatic, with long term policies that will produce positive benefits.”

Other survey components: Other components of the January Business Conditions Index were new orders at 62.1, up from 50.1 in December; the production or sales index moved higher to 57.9 from December’s 48.5; and speed of deliveries of raw materials and supplies index at 53.8 declined from last month’s 54.4.

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 January Business Conditions Index for Arkansas climbed to 59.0 from December’s 53.0. Components of the index from the monthly survey of supply managers were new orders at 68.1, production or sales at 54.8, delivery lead time at 54.8, inventories at 61.8, and employment at 55.4. “Over the past 12 months, average hourly wages for private workers in Arkansas expanded by 6.7% which was the highest in the nine-state region. Nondurable goods manufacturers are outperforming durable goods producers in terms of Arkansas job growth,” said Goss.

Iowa: After falling below growth neutral for November, Iowa’s overall Business Conditions Index climbed above the threshold for the last two months with a January reading of 55.7, up from 50.9 in December. Components of the overall index from the monthly survey of supply managers were new orders at 60.8, production or sales at 53.1, delivery lead time at 53.6, employment at 53.5, and inventories at 57.7. “Over the past 12 months, average hourly wages for private workers in Iowa expanded by 3.0% which was seventh in the nine-state region. Both durable and nondurable goods manufacturers are adding jobs at a slow pace. Manufacturers closely linked to agriculture continue to experience slow to no growth,” said Goss.

Kansas: The Kansas Business Conditions Index for January increased to 58.4 from December’s 52.1. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 65.6, production or sales at 56.9, delivery lead time at 54.4, employment at 54.7, and inventories at 60.4. “Over the past 12 months, average hourly wages for private workers in Kansas expanded by 4.3% which was fourth in the nine-state region. Both durable and nondurable goods manufacturers are expanding at a slow but positive pace. Even aircraft component manufacturers continue to expand despite Boeing’s problems,” said Goss.

Minnesota: The January Business Conditions Index for Minnesota expanded to 57.9 from 50.7 in December. Components of the overall January index from the monthly survey of supply managers were new orders at 64.1, production or sales at 57.3, delivery lead time at 54.1, inventories at 59.5, and employment at 54.3. “Over the past 12 months, average hourly wages for private workers in Minnesota expanded by 4.5% which was third in the nine-state region. Durable goods manufacturers in the state are shedding jobs while nondurable goods manufacturers continue to add jobs at a slow but positive pace,” said Goss.

Missouri: The January Business Conditions Index for Missouri rose to 56.2 from December’s 50.5. Components of the overall index from the survey of supply managers were new orders at 59.3, production or sales at 58.7, delivery lead time at 53.3, inventories at 56.8, and employment at 53.1. “Over the past 12 months, average hourly wages for private workers in Missouri expanded by 3.5% which was fifth in the nine-state region. Nondurable goods manufacturers are expanding at a solid pace while durable goods producers are experiencing pullbacks in economic activity,” said Goss.

Nebraska: After falling below growth neutral in November, Nebraska’s Business Conditions Index has risen above the threshold for two consecutive months. The state’s overall index jumped to 58.8 from 52.1 in December. Components of the index from the monthly survey of supply managers were new orders at 68.0, production or sales at 53.9, delivery lead time at 54.8, inventories at 61.7, and employment at 55.3. “Over the past 12 months, average hourly wages for private workers in Nebraska expanded by 5.2% which was second in the nine-state region. Nondurable goods manufacturers in the state are expanding at a solid pace while durable goods producers are experiencing slight to no growth,” said Goss.

North Dakota: The January Business Conditions Index for North Dakota expanded to 52.0 from December’s 48.2. Components of the overall index were new orders at 63.0, production or sales at 39.3, delivery lead time at 49.8, employment at 48.7, and inventories at 58.9. “Over the past 12 months, average hourly wages for private workers in North Dakota expanded by 2.6% which was eighth in the nine-state region. Nondurable goods manufacturers in the state are experiencing slow to no growth while durable goods producers are expanding at a solid pace,” said Goss.

Oklahoma:For the first time since October, Oklahoma’s Business Conditions Index climbed above growth neutral. The overall index for January rose to 52.2 from December’s 48.4. Components of the overall January index were new orders at 40.1, production or sales at 59.0, delivery lead time at 53.1, inventories at 56.1, and employment at 52.7. “Over the past 12 months, average hourly wages for private workers in Oklahoma expanded by 0.8% which was ninth in the nine-state region. Both durable and nondurable goods manufacturers in the state are experiencing slow to no growth,” said Goss.

South Dakota: The January Business Conditions Index for South Dakota climbed to a regional high 59.3 from December’s 52.3. Components of the overall index from the January survey of supply managers in the state were new orders at 68.2, production or sales at 56.2, delivery lead time at 54.9, inventories at 61.8, and employment at 55.4. “Over the past 12 months, average hourly wages for private workers in South Dakota expanded by 3.3% which was sixth in the nine-state region. Both durable and nondurable goods manufacturers in the state are expanding at a slow, but positive pace,” said Goss.

Survey results for January will be released on the first business day, March 2.