Growth Outlook Improves for Mid-America in December: Inflation Gauge Lowest Level in More Than Five Years


December survey results at a glance: • Leading economic indicator climbs for the month.• New hiring expanded for December. • Businesses expect 2.5 percent wage gain for 2015, unchanged from 2014 expectations. • Wholesale inflation gauge drops to lowest level in more than 5 years. • Business confidence remains healthy.

Newswise — OMAHA, Neb. – The Creighton University Mid-America Business Conditions Index for December, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, jumped from November’s tepid reading. Indices over the past several months are pointing to positive economic gains over the next three to six months for the region.

Overall index: The Business Conditions Index, which ranges between 0 and 100, rose to 54.4 from November’s 51.3. After hovering slightly above growth neutral for the past several months, the index from a survey of supply managers in the region moved back into a more healthy range.

“Over the past six months, a 26 percent decline in grain prices and a 13 percent plunge in fuel and related products have had negative impacts on businesses with ties to agriculture and energy. At the same time, these price declines have produced positive impacts for firms more closely tied to the consumer,” 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: The regional employment gauge moved back into a range pointing to solid, but not spectacular, job growth in the next three to six months. The job gauge advanced to 56.5 from 49.4 in November. “Businesses linked to agriculture and energy are experiencing weaker hiring conditions. At the same time, companies tied to consumer spending report expanding hiring,” said Goss.

This month supply managers reported expected wage gains for 2015. “On average, supply mangers anticipate a 2.5 percent increase, which is identical to that anticipated for 2014. Last year businesses in the region increased average weekly wages by 1.5 percent, or well below expectations. I expect regional wage growth to improve significantly for the first half of 2015,” said Goss.

Wholesale Prices: For three of the past four months, the prices-paid index, which tracks the cost of raw materials and supplies, declined for the month. The wholesale inflation index sank to 50.8, its lowest level in more than five years, and down from November’s 56.4. “A strengthening U.S. dollar and weaker global demand have pushed inflationary pressures at the wholesale level lower over the past several months,” said Goss.

Last year at this time Creighton asked supply managers how much they expected the prices of goods and services they purchase to change by in the months ahead. On an annualized basis, the supply managers’ expected gain dropped by two percentage points from last year’s forecast. “Clearly, both actual and expected wholesale price gains are declining,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, dipped to a still solid 58.1 from 61.5 in November. “Weaker economic conditions in the regional energy and agriculture sectors, offset improvements in the national and regional job market in terms of supply managers’ business outlook,” said Goss.

Inventories: The inventory index, which tracks the change in the level of raw materials and supplies, improved to 53.4 from November’s 52.8. “Supply managers expanded inventories for the month, and at a slightly faster pace than in November. 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 sank to 52.7 from 57.0 in November. The import index for December climbed to 56.7 from November’s 51.0. “Over the past six months, the value of the U.S. dollar has risen by more than 10 percent against the currencies of its chief trading partners. This movement has made U.S. goods less competitively priced abroad and foreign goods more cheaply priced in the U.S. I expect this dollar weakness to result in downturns in export orders and continuing increases in imports for the region in the months ahead,” said Goss.

Other components: Other components of the December Business Conditions Index were new orders at 54.3, up from 50.7 in November; production or sales fell to 49.2 from November’s 52.2; Delivery speed of raw materials and supplies soared to 58.9 from last month’s 51.4.

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 by the National Institute for Supply Management, formerly the Purchasing Management Association, since 1931.

Arkansas: The December overall index, or leading economic indicator, for Arkansas rebounded to 51.7 from November’s 43.7. Components of the index from the monthly survey of supply managers were new orders at 58.5, production or sales at 47.6, delivery lead time at 52.7, inventories at 43.2, and employment at 56.4. “For 2014, Arkansas’ leading industry was durable goods manufacturing while its lagging industry was information. Based on our survey results, I expect the state to add jobs at a solid pace for the first half of the year with lower fuel prices being the prime factor pushing hiring up while declining exports will restrain growth,” said Goss. Iowa: After declining for five straight months, Iowa’s Business Conditions Index for December rose to 53.4 from 50.1 in November. Components of the index from the monthly survey of supply managers were new orders at 51.6, production or sales at 49.2, delivery lead time at 66.4, employment at 53.4, and inventories at 46.6. “For 2014, Iowa’s leading industry was insurance, while its lagging industry was fabricated metal production. Based on our survey results, I expect Iowa to add jobs at a positive pace for the first half of the year but with pullbacks in exports restraining growth,” said Goss. Kansas: The Kansas Business Conditions Index for December increased slightly to a healthy 62.6 from November’s 62.2. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 64.5, production or sales at 62.2, delivery lead time at 62.2, employment at 54.8, and inventories at 69.2. “For 2014, the leading industry for Kansas was telecommunications, while its lagging industry was aerospace manufacturing. Based on our survey results, I expect Kansas to add jobs at a solid pace for the first half of the year with pullbacks in exports restraining growth, but at a still healthy rate,” said Goss. Minnesota: December survey results mark the 25th straight month Minnesota’s Business Conditions Index has remained above growth neutral. The overall index, or leading economic indicator, advanced to a healthy 61.4 from November’s 58.0. Components of the index from the December survey of supply managers were new orders at 68.2, production or sales at 69.4, delivery lead time at 56.6, inventories at 57.8, and employment at 55.3. “For 2014, Minnesota’s leading industry was fabricated metal production, while its lagging industry was telecommunications. Based on our survey results, I expect Minnesota to add jobs at a solid pace for the first half of the year with pullbacks in exports restraining growth to a still healthy rate,” said Goss.

Missouri: The December Business Conditions Index for Missouri climbed to 55.7 from 54.9 in November. Components of the index from the survey of supply managers for December were new orders at 56.6, production or sales at 58.3, delivery lead time at 58.4, inventories at 53.8, and employment at 51.6. “For 2014, Missouri’s leading industry was transportation equipment manufacturing, while its lagging industry was telecommunications. Based on our survey results, I expect Missouri to add jobs at a solid pace for the first half of the year with pullbacks in exports restraining growth to a still healthy rate,” said Goss.

Nebraska: For the 12th straight month, Nebraska’s Business Conditions Index remained above growth neutral 50.0. The December index, a leading economic indicator from a survey of supply managers in the state, rose to a tepid 52.7 from 51.6 in November. Components of the index for December were new orders at 51.1, production or sales at 46.6, delivery lead time at 51.1, inventories at 59.8, and employment at 54.7. “For 2014, Nebraska’s leading industry was food processing, while its lagging industry was machinery manufacturing. Based on our survey results, I expect Nebraska to add jobs at a solid pace for the first half of the year with pullbacks in the export of agriculture commodities restraining growth to a still healthy rate,” said Goss.

North Dakota: North Dakota’s leading economic indicator fell to a level pointing to solid, but slower economic growth in the next three to six months. The December Business Conditions Index fell to 52.7 from November’s 53.4. Components of the overall index from the monthly survey of supply managers for December were new orders at 53.6, production or sales at 51.4, delivery lead time at 52.6, employment at 55.0, and inventories at 51.0. “For 2014, North Dakota’s leading industry was mining, while its lagging industry was machinery manufacturing. Based on our survey results, I expect North Dakota to add jobs at a positive but weaker pace for the first half of the year with pullbacks in the state’s energy sector restraining growth,” said Goss.

Oklahoma: The Business Conditions Index for Oklahoma, a leading economic indicator, dipped slightly for December, signaling positive growth in the next three to six months. The index for December declined to 54.0 from November’s 54.5. Components of the December survey of supply managers in the state were new orders at 58.2, production or sales at 54.5, delivery lead time at 46.5, inventories at 52.8, and employment at 58.2. “For 2014, Oklahoma’s leading industry was machinery manufacturing while its lagging industry was food processing. Based on our survey results, I expect the state to add jobs at a positive but weaker pace for the first half of the year with pullbacks in the state’s energy sector and firms tied to energy restraining growth,” said Goss.

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, increased to 52.4 from November’s 51.5. Components of the overall index for December were new orders at 47.1, production or sales at 64.7, delivery lead time at 64.3, inventories at 34.7, and employment at 51.3. “For 2014, South Dakota manufacturing tied to energy pushed state growth into a healthy range. However, the sharp cut in oil and agriculture prices will reduce South Dakota’s growth for the first half of 2015. Even so, I expect growth to remain positive for the first half of the year,” said Goss.

Survey results for January will be released on the first business day of next month, Feb. 2.

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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