Skilled Labor Shortages Reported in Parts of Region
March survey results at a glance:
- Rising exports raised the region’s leading economic indicator.
- New hiring was strong for the month.
- Inflation gauge signals excessive wholesale inflation in the months ahead.
- Shortages of skilled manufacturing workers reported for many parts of region.
- Approximately 72 percent of firms report fuel suppliers adding fuel surcharges.
The monthly Business Conditions Index for the nine-state, Mid-America region indicates growing strength in the regional economy. The index, a leading economic indicator from a monthly survey of supply managers, has increased for five straight months.
Overall index: The index, which ranges between 0 and 100, climbed to 58.6 from 58.4 in February. “Only a significant upturn in oil prices or a catastrophe such as last year’s Japanese tsunami will derail this expansion. Thus far, higher gasoline and fuel prices have failed to slow growth in the region. Firms with close ties to agriculture and energy as well as businesses selling internationally continue to lead the regional economy,” said Ernie Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
“This month, we asked supply managers how their suppliers were dealing with higher fuel prices. Almost three of four, or 72 percent, indicated that suppliers were adding fuel surcharges to the cost of supplies while 16 percent of suppliers absorbed the added costs. The remaining 12 percent incorporated elevated fuel costs into the purchase price,” said Goss.
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 by the National Institute for Supply Management, formerly the Purchasing Management Association, since 1931.
Employment: For a third straight month, the employment index climbed above growth neutral. The hiring gauge increased to a strong 58.5 from February’s healthy 57.5. “Employment growth in the region is accelerating with reports of labor shortages for skilled manufacturing workers. Recent surveys indicate that employment growth will approach an annualized rate of 1.5 percent in the second quarter of 2012. Given that the regional annual average job growth prior to the recession was 1.1 percent, this expected growth is very healthy,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, rose to 76.5 from February’s already inflationary 74.7. “While much of the growth has been driven by higher energy prices, supply managers report rapidly increasing prices for a broad range of supplies they purchase. Supply managers reported sharp increases in food, chemicals and metal products for the month. While the expanding economy has been an important factor pushing prices higher, the Federal Reserve’s (Fed) easy-money policy has been a big contributor to increases in our inflation gauge. I expect the Fed to begin raising rates well before their announced date of 2014. In my judgment, the Fed’s pro-growth stance poses significant inflationary risks,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the March business confidence index, rose to a healthy 62.2 from 61.0 in February. “Lower unemployment rates and an expanding national economy more than offset concerns surrounding higher energy and fuel prices,” said Goss.
Inventories: The March inventory index climbed to 58.9 from February’s 54.2. “Healthy inventory growth signals that supply managers expect production expansions in the months ahead and is consistent with the strong business-confidence reading for the month. This will be an important component of growth for the first half of 2012,” said Goss.
Trade: March’s export numbers for the Mid-America region expanded to a solid 56.4 from February’s 55.3. At the same time, March imports advanced to 57.4 from 56.6 in February. “The export of manufactured goods, particularly those connected to agriculture, has been a very important contributor to regional growth. At the same time, the regional economic expansion has boosted imports by regional companies,” said Goss.
Other components: Other components of the March Business Conditions Index were new orders at 60.8, up from 58.4 in February; production or sales at 60.4, down from 60.9; and delivery at 54.5, down from February’s 56.4.
Arkansas: The overall index for Arkansas soared to 67.8 from 55.5 in February. Components of the index from the monthly survey of supply managers were new orders at 65.3, production or sales at 64.3, delivery lead time at 71.2, inventories at 56.9, and employment at 81.6. “Nondurable goods manufacturers in the state continue to shed jobs. On the other hand, durable goods producers in the state, especially those dependent on sales abroad, are experiencing healthy growth. As the state’s employment situation improves significantly in the months ahead, I expect the unemployment rate to drop by another one-half of one percentage point by the end of the final quarter of 2012,” said Goss.
Iowa: For the 27th straight month, Iowa’s Business Conditions Index remained above growth neutral. The index from a survey of supply managers, climbed to a strong 67.5 from 66.5 in February. Components of the index for March were new orders at 75.5, production or sales at 69.0, delivery lead time at 55.2, employment at 66.8, and inventories at 70.9. “Both durable and nondurable goods manufacturers in the state are adding jobs at a healthy pace. Manufacturers tied to agriculture and dependent on sales abroad are experiencing especially strong growth. As a result of this solid expansion, I expect Iowa’s unemployment rate to move below 5 percent, for the first time since 2008, by the middle of 2012,” said Goss.
Kansas: The Kansas Business Conditions Index for March climbed to 55.3 from 53.7 in February. Components of the index from March’s survey of supply managers in the state were new orders at 56.5, production or sales at 51.2, delivery lead time at 57.1, employment at 53.1, and inventories at 58.7. “Growth among durable goods producers, especially those dependent on exports, continues to boost state growth. The state’s large telecommunications sector remains an area of concern while food producers in the state continue to shed jobs, albeit at a slow pace. However by the middle of 2012, as a result of the state’s improving employment situation, I expect the Kansas unemployment rate to drop below 6 percent for the first time since 2008,” said Goss.
Minnesota: The March Minnesota Business Conditions Index was above growth neutral for the 31st consecutive month. The index slipped to a still healthy 56.7 from 58.3 in February. Components of the index from the March survey of supply managers were new orders at 54.7, production or sales at 62.0, delivery lead time at 56.2, inventories at 51.9, and employment at 58.8. “Manufacturers in the state are experiencing very healthy growth with exports leading the way. Durable goods producers in the state are outperforming nondurable goods manufacturers in the state with firms tied to agriculture continuing to report expanding economic conditions. The state’s unemployment rate will continue to decline in the months ahead moving below 6 percent for the first time since 2008 by the end of the third quarter of this year,” said Goss.
Missouri: The March Missouri Business Conditions Index climbed above growth neutral for the month. The index, a leading economic indicator from a survey of supply managers, increased to 58.3 from February’s 53.8. Components of March’s Business Conditions Index were new orders at 62.5, production or sales at 59.8, delivery lead time at 56.7, inventories at 53.7, and employment at 59.1. “Firms tied to vehicle manufacturing in the state continue to report pullbacks. However, this negative has been more than offset by the improving economic conditions of non-vehicular, durable goods manufacturers. As in the rest of the region, companies tied to exports are reporting very healthy growth. As a result of a slowly improving state economy, I expect the state’s unemployment rate to move below 7 percent for the first time since 2008 by the end of the third quarter of 2012,” said Goss.
Nebraska: The March Business Conditions Index for Nebraska remained above growth neutral 50.0 for the 17th consecutive month. However, the index, a leading economic indicator from a survey of supply managers, sank to 53.0 from 56.2 in February. Components of the index were new orders at 52.7, production or sales at 51.2, delivery lead time at 52.1, inventories at 54.0, and employment at 54.8. “Heavy manufacturers in the state which are tied to exports are experiencing very healthy growth. In addition, firms tied to agriculture continue to expand sales and employment. As a result of expanding economic conditions, I expect the state’s unemployment rate to dip slightly below 4 percent in the months ahead,” said Goss.
North Dakota: The leading economic indicator for North Dakota bounced higher for March. The Business Conditions Index from a survey of supply managers in the state climbed to 63.0 from 61.0 in February. Components of the overall index for March were new orders at 72.7, production or sales at 67.2, delivery lead time at 63.2, employment at 60.8, and inventories at 51.0. “The triple forces of agriculture, energy and exports have pushed employment to record high levels. Our survey indicates that this growth will continue for the next three to six months with firms tied to exports adding to the state’s good economic fortunes,” said Goss.
Oklahoma: The Business Conditions Index for Oklahoma, a leading economic indicator from a survey of supply managers in the state, rose to a strong 58.6 from February’s 56.9. Components of the leading economic indicator for March were new orders at 56.6, production or sales at 57.5, delivery lead time at 66.9, inventories at 52.9, and employment at 59.4. “Firms tied to exports and energy are driving the state’s economy at a very healthy pace. More than in any other state in the region, Oklahoma manufacturers are reporting shortages of skilled labor. Except for food producers in the state, durable and nondurable goods manufacturers are progressing at a brisk pace. I expect Oklahoma's unemployment rate to dip by another one-half of a percentage point by the end of the third quarter of this year,” said Goss.
South Dakota: The leading economic indicator for South Dakota rose to a healthy level for March. The Business Conditions Index climbed to 64.4 from 58.9 in February. Components of the index for March were new orders at 62.3, production or sales at 74.3, delivery lead time at 45.1, inventories at 76.8, and employment at 63.6. “Manufacturers, especially those linked to agriculture and to exports, are experiencing very healthy growth. As a result of expanding economic conditions in the state, I expect South Dakota's unemployment rate to decline by another one-half of a percentage point by the end of the third quarter of this year,” said Goss.
Survey results for April will be released May 1.
Follow Goss on twitter at http://twitter.com/erniegoss
For historical data and forecasts visit our website at: