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Mid-America business indicators climb

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By Larry Dreiling

The monthly Mid-America Business Conditions Index, a leading economic indicator for a nine-state region, bounced higher for the month, according to a Creighton University researcher.

The index is pointing to improving economic growth for the region in the next three to six months.

The Business Conditions Index, which ranges between 0 and 100, climbed to 58.2 from February’s tepid 53.1.

“This is the largest one-month jump that we have recorded since January 2012. However, we will have to record several consecutive months of readings like this to be confident that the regional economy is picking up steam. The strongest new orders growth in two years was the prime factor boosting the overall index higher,” reported Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

After moving below growth neutral for January, the region’s employment gauge climbed above 50.0 for February and March. The March employment reading rose to 56.3 from February’s 51.6.

“Over the last year, the region added jobs at a pace of 1.4 percent, ranging from a low of 0.2 percent for Arkansas to 5 percent for North Dakota. Our survey results point to an upturn in regional job growth in the months ahead,” Goss said.

The prices-paid index, which tracks the wholesale cost of purchased raw materials and supplies, sank to 64.1 from 72.6 in February.

This month supply managers were asked how much they expected the prices for their company’s products and services to increase this year in comparison to last year.

“On average, supply managers expect their prices to grow by two percent for 2013, or approximately the current rate of growth in the U.S. consumer price index. Thus far, the Federal Reserve’s cheap money policy is elevating inflationary pressures, but only modestly,” Goss said.

“The bigger problem in Mid-America has been the Fed’s impact on asset prices such as farmland which continue to expand at annual rates above 15 percent for much of the region. However, the combination of good growth for the month and cooling inflationary pressure are very positive signals.”

Looking ahead six months, economic optimism, as captured by the March business confidence index, expanded to 58.2 from February’s weaker 50.6.

“This month we asked supply managers how the federal spending sequestration was affecting their company. More than three-fourths, or 76.3 percent, indicated that the cuts were having no impact on their company. The remaining 23.7 percent reported only modest impacts. None of the businesses reported significant impacts,” said Goss.

Regional inventory levels increased for the month and at a faster pace compared to February. The March inventory index increased to 58.1 from February’s 52.2.

“Companies in our survey have now expanded inventory levels for four straight months. This inventory accumulation will add to regional growth in the months ahead. This is another indicator of improving business confidence,” said Goss.

In trade, new export orders remain fragile for the region. The new export orders index increased to a 50.9 from 49.2 in February. On the other hand, imports advanced to 55.0 from 53.7.

“As our overall regional gauge moved higher for March so did purchasing from abroad. On the other hand, economic weakness among the region’s important trading partners restrained export orders,” said Goss.

Other components of the March Business Conditions Index were new orders at 65.4, up dramatically from February’s 55.0; production or sales at 62.4, up from 55.5; and delivery lead time at 49.0, down from 51.1 in February.

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.

State highlights include:

Iowa: For a third straight month, Iowa’s Business Conditions Index increased. The overall index from a survey of supply managers climbed to 65.5, a regional high, from February’s 64.6, also a regional high. Components of the index for March were new orders at 69.5, production or sales at 74.2, delivery lead time at 51.9, employment at 65.4, and inventories at 66.5.

“The Iowa economy is experiencing very broad-based business gains. Durable goods producers, especially metal manufacturers and agriculture equipment producers, continue to expand at a very brisk pace. Our surveys over the past several months point to a continuation of the healthy growth with gains in both jobs and average hours worked for most industries,” said Goss.

Kansas: The Kansas Business Conditions Index for March slipped to 52.0 from February’s 54.1. Components of the leading economic indicator were new orders at 53.6, production or sales at 58.1, delivery lead time at 50.2, employment at 49.9, and inventories at 48.3.

“Although durable and nondurable goods manufacturers continue to experience improving economic conditions, transportation equipment producers in the durable sector and food processors in the nondurable sector, report no improvements from February. Importantly after a long period of slow to negative growth, telecommunications firms and their suppliers report expanding business activity,” said Goss.

Missouri: The March Business Conditions Index for Missouri advanced to 54.9 from 52.1 in February. Components of the survey of supply managers in the state were new orders at 56.2, production or sales at 54.0, delivery lead time at 52.8, inventories at 52.4, and employment at 58.9.

“Growth was much stronger among the state’s durable goods producers, such as metal manufacturers and agriculture equipment producers, than among the state’s nondurable goods producers such as food manufacturers. Missouri’s telecommunications firms are experiencing cuts in jobs and business activity,” said Goss.

Nebraska: After declining below growth neutral for two of the past three months, Nebraska’s leading economic indicator bounced above the threshold for March. The Business Conditions Index, from a survey of supply managers, climbed to 53.4 from 48.7 in February. Components of the index for March were new orders at 59.4, production or sales at 54.3, delivery lead time at 51.2, inventories at 54.1, and employment at 48.1.

“The state’s durable goods producers detailed improvements in business activity. Growth is especially strong for metal manufacturers and agriculture equipment producers. Nebraska’s nondurable goods manufacturing also reported upturns in business activity with the state’s large food manufacturing sector showing improvements for the month,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma moved above growth neutral for March. The leading economic indicator from a monthly survey of supply managers soared to 60.0 from 52.5 in February. Components of the March survey of supply managers in the state were new orders at 63.4, production or sales at 61.7, delivery lead time at 62.0, inventories at 57.3, and employment at 55.4.

“Business and manufacturing construction has bolstered the state’s economy over the last several months. Additionally durable goods manufacturers, including agriculture equipment producers and metal manufacturers, reported very healthy growth and more than offset weakness among nondurable goods manufacturers such as food processors,” said Goss.

South Dakota: For a fourth straight month, South Dakota’s leading economic indicator from a survey of supply managers rose above the 50.0 threshold to 58.7 from February’s 52.5. Components of the index for March were new orders at 67.7, production or sales at 69.3, delivery lead time at 49.5, inventories at 57.4, and employment at 49.6.

“Our South Dakota indicators were strong for March. Manufacturers reported expanding economic conditions and new hiring for the month,” said Goss.

Larry Dreiling can be reached by phone at 785-628-1117, or by email at ldreiling@aol.com.

Date: 4/15/2013



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