October survey results at a glance: • Leading economic indicator was down for the month. • New export orders decline for the month.• Businesses cut employment for October. • Average wage gain of 1.6 percent expected for next year. • Wholesale pressures remain modest for the last several months.
Newswise — OMAHA, Neb. – The Mid-America Business Conditions Index for October, a leading economic indicator for a nine-state region, stretching from North Dakota to Arkansas, slumped from September’s solid reading. Indices over the past several months are pointing to positive, but slower, economic gains over the next three to six months for the region.
Overall index: The Business Conditions Index, which ranges between 0 and 100, fell to 51.8 from September’s 54.3. After rising to its highest level in more than three years in June, the overall reading has hovered in a range pointing to positive, but slower, growth for the overall regional economy over the next three to six months.
“Sharp declines in grain and crude petroleum prices drove the overall index down for the month. Even with the pullback, economic growth is expected to be positive, but somewhat slower in the next several months. October weakness in rural areas of the region offset stronger conditions in urban areas of the nine-states,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.
Employment: For the second time in the past three months, the employment index moved below the growth neutral threshold of 50.0. The job gauge fell to 43.1 from September’s much stronger 53.5 and August’s 48.7. “Businesses tied to agriculture and energy are experiencing weaker economic conditions. At the same time, businesses seeking to hire skilled workers are reporting a lack of qualified applicants,” said Goss.
“There is currently a record number of workers employed in the region. Even so, employers in the region continue to expand output primarily by increasing hours worked of current workers and adding temporary workers,” said Goss. “I think the October decline is temporary with hiring likely to remain on a positive pace.”
This month supply managers were asked how much they expect wages and salaries for workers in their firm to grow in the next year. On average, growth of 1.6 percent is expected, which is less than the growth estimate in March 2014 of 1.8 percent.
Wholesale Prices: After three straight monthly declines, the prices-paid index, which tracks the cost of raw materials and supplies, rose for the month. The wholesale inflation index advanced to 60.6 from September’s 60.1. Even with the slight increase, inflationary pressures at the wholesale level remain moderate.
This month supply managers were also asked to estimate the price change for the next 12 months for raw materials and supplies purchased. On average an increase of 5.8 percent for the next 12 months is expected. This is up from the 4.8 percent estimated in March of this year.
Confidence: Looking ahead six months, economic optimism, as captured by the October business confidence index, climbed to 61.2 from 59.6 in September. “Despite weaker economic conditions in the regional energy and agriculture sectors, improvements in the national and regional job market supported supply managers’ business outlook,” said Goss.
Inventories: The inventory index, which tracks the level of raw materials and supplies, decreased to 51.4 from September’s 52.0. “Supply managers expanded inventories for the month, but at slower pace than in September. This is yet another signal that supply managers remain reasonably upbeat about the economy as they increased inventories in anticipation of expanding sales for their companies in the months ahead,” said Goss.
Trade: The new export orders index declined again to 48.8 from 53.2 in September. The import index for October increased to 52.9 from September’s 52.8. “The significant increase in the value of the dollar this year has made U.S. goods less competitively priced abroad and increased the attractiveness of foreign goods sold in the U.S. Combined with slower global growth, I expect our export reading to soften even more in the months ahead,” said Goss.
Delivery speed. The delivery lead time index decreased to 56.2 from 59.0 in September. “Business in the region continue to report supply bottlenecks in obtaining timely delivery of raw materials and supplies,” said Goss.
Other components: Other components of the October Business Conditions Index were new orders at 53.6, up from 52.9 in September; production or sales rose to 55.0 from last month’s 54.3.
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.
Arkansas: The overall index, or leading economic indicator, for Arkansas advanced to a weak 49.3 from September’s 47.0. Components of the index from the monthly survey of supply managers were new orders at 50.7, production or sales at 48.8, delivery lead time at 60.9, inventories at 43.5, and employment at 42.7. “Pullbacks among nondurable goods producers and technology firms more than offset growth for durable goods manufacturers for October. Businesses continue to expand construction activity at a solid pace in the state,” said Goss. Average weekly wages declined by 1.2 percent over the past 12 months, worst in the region, for private workers in Arkansas. Iowa: Iowa’s Business Conditions Index for October fell to a tepid 51.4 from 51.5 in September. This is the fourth consecutive month that the reading has declined. Components of the index from the monthly survey of supply managers were new orders at 46.0, production or sales at 46.6, delivery lead time at 65.6, employment at 54.2, and inventories at 43.5. “Durable goods producers, including agriculture equipment producers and nondurable goods manufacturers, especially food processors, reported much slower growth than recorded earlier in the year. Businesses continue to expand construction projects in the state,” said Goss. Average weekly wages expanded by 2.1 percent over the past 12 months for private workers in Iowa.
Kansas: The Kansas Business Conditions Index for October dipped to healthy 62.4 from September’s 69.7. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 80.6, production or sales at 74.3, delivery lead time at 48.6, employment at 41.8, and inventories at 66.7. “Economic pullbacks among durable goods producers, including transportation equipment manufacturers, were more than offset by solid growth for nondurable goods producers in the state,” said Goss. Average weekly wages expanded by 2.9 percent over the past 12 months for private workers in the state.
Minnesota: October survey results mark the 23rd straight month Minnesota’s Business Conditions Index has remained above growth neutral. The index slipped to a very healthy 63.7 from September’s 66.3. Components of the index from the October survey of supply managers in the state were new orders at 65.4, production or sales at 67.4, delivery lead time at 62.2, inventories at 67.0, and employment at 56.9. “Durable goods producers, especially those with ties to vehicle manufacturing, are experiencing strong growth. Nondurable goods manufacturers, including food processors, benefited from an expanding U.S. economy. Growth in construction continues to be a source of state growth,” said Goss. Average weekly wages expanded by 0.9 percent over the past 12 months for private workers in Minnesota.
Missouri: The October Business Conditions Index for Missouri declined to a solid 57.1 from September’s 57.7. Components of the index from the survey of supply managers for October were new orders at 58.1, production or sales at 59.7, delivery lead time at 56.9, inventories at 57.7, and employment at 52.8. “As in prior months, durable manufacturers, especially vehicle producers, and nondurable goods manufacturers, except for food processors, reported very healthy expansions for the month. Trucking firms have benefited significantly from the manufacturing growth,” said Goss. Average weekly wages expanded by 2.1 percent over the past 12 months for private workers in the state.
Nebraska: For the 10th straight month, Nebraska’s Business Conditions Index remained above growth neutral 50.0. However, the October index, a leading economic indicator from a survey of supply managers in the state, fell to a tepid 50.3 from September’s 51.8. Components of the index for October were new orders at 51.9, production or sales at 54.8, delivery lead time at 54.2, inventories at 48.8, and employment at 42.0. “Growth for nondurable goods producers, including food processors, more than offset weakness for durable goods manufacturers in the state. Expansions for manufacturers in Nebraska have significantly benefited trucking firms in the state. I expect Nebraska growth for the final quarter of 2014 to be well down from the same period in 2013,” said Goss. Average weekly wages expanded by 1.8 percent over the past 12 months for private workers in the state.
North Dakota: North Dakota’s leading economic indicator climbed to a level pointing to healthy but slower economic growth in the next three to six months. The October Business Conditions Index slumped to 54.8 from 61.8 in September. Components of the overall index from the monthly survey of supply managers for October were new orders at 53.3, production or sales at 55.5, delivery lead time at 60.2, employment at 51.2, and inventories at 53.9. “Both durable and nondurable goods manufacturing activity softened a bit, but remained healthy with oil prices coming down significantly. Growth remains healthy with trucking firms benefiting significantly from the state’s economic expansion. I expect North Dakota’s growth for the final quarter to be down from the same period in 2013 as the state experiences reduced economic prospects due to weaker conditions in agriculture and energy,” said Goss. Average weekly wages expanded by 3.5 percent, the highest in the region, over the past 12 months for private workers in North Dakota.
Oklahoma: The Business Condition Index for Oklahoma fell below growth neutral for the month signaling a potential slowdown in economic growth in the next three to six months. The index for October sank to 48.0 from September’s much stronger 58.0. Components of the October survey of supply managers in the state were new orders at 57.6, production or sales at 26.6, delivery lead time at 52.4, inventories at 60.9, and employment at 42.6. “Durable goods producers, except for firms with ties to transportation equipment, and nondurable goods manufacturers, except for food processors, reported growth for the month. Based on survey results, I expect economic growth for the final quarter of 2014 to be down from the same period in 2013,” said Goss. Average weekly wages expanded by 0.9 percent over the past 12 months for private workers in the state.
South Dakota: After moving below growth neutral in November of 2012, South Dakota’s leading economic indicator has been above growth neutral 50.0 each month since. The Business Conditions Index, from the monthly survey of supply managers, fell to a weak 51.8 from September’s 55.0. Components of the overall index for October were new orders at 48.4, production or sales at 63.2, delivery lead time at 57.0, inventories at 38.7, and employment at 51.8. “Manufacturers in the state continue to expand operations. However, the expansion is slowing as companies have reduced the hours worked for current employees. I expect growth to remain positive for the final quarter of 2014, but down from the same period in 2013,” said Goss. Average weekly wages expanded by 0.3 percent over the past 12 months for private workers in the state.
Survey results for November will be released on the first business day of next month, Dec. 1.
Follow Goss on twitter at http://twitter.com/erniegossFor historical data and forecasts visit our website at:http://www2.creighton.edu/business/economicoutlook/
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