Mid-America economy shows expansion in early summer

The June Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, expanded to a solid reading signaling positive growth for the region over the next three to six months.

The Business Conditions Index, which ranges between 0 and 100, advanced to 55.4 from May’s 54.3. This is the first increase in the overall index since March, and the 31st straight month the index has remained above growth neutral 50.0.

“The regional economy expanded at a slower pace than the rest of the nation for the first half of 2019,” 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, Omaha, Nebraska.

“Weak farm income, produced partially by tariffs and flooding, pulled regional growth below that of the nation. Even so, based on our manufacturing survey over the past several months, I expect overall growth to remain solidly positive.”

According to the June survey, 71.1 percent of supply managers supported continuing current tariffs on China or even raising them.

As noted by one supply manager, “While President Trump takes heat for the trade tariffs, this seems to be the only tool in the tool chest currently that can make a difference. Unfortunately, he will be on borrowed time if the next round of increases do not hit the intended targets and America’s farmers are at a breaking point however patriotic they might be.”

Employment

Despite worker shortages, the June employment index climbed to 58.9 from May’s 52.2.

“Since December of 2018, the national employment growth rate has been approximately three times that of the region. Not surprisingly, approximately 40 percent of supply managers reported the shortage of qualified workers was the greatest economic challenge for their company for the next 12 months,” Goss said. “Due to shortages of workers in the region, U.S. Labor Statistics data show that the average regional hourly wage rate rose by 4.8 percent over the past 12 months, well above the national gain of 3.1 percent over the same period of time.”

Wholesale prices

The wholesale inflation gauge for the month indicated modest inflationary pressures for the month with a wholesale price index of 59.1, down from 62.8 in May and 67.5 in April. “However, I expect tariffs and flood impacts to put a floor under the wholesale inflation index in the months ahead,” said Goss.

Moderate and declining wholesale inflation from our survey and national surveys support a Federal Reserve rate cut. “I expect the Federal Reserve to reduce short-term interest rates at their July or September meetings,” reported Goss.

Confidence

Looking ahead six months, economic optimism, as captured by the June Business Confidence Index, advanced to 59.1 from May’s 54.5.

“However, I expect business confidence to depend heavily on trade talks with China and Federal Reserve’s interest rate actions in the weeks and months ahead,” reported Goss.

Inventories

Companies expanded inventories of raw materials and supplies for the month, with the June inventory climbing to 55.9 from May’s 48.8.

Trade

The regional trade numbers for June were down with both export orders and imports falling. The new export orders index sank to 48.3, down from May’s 48.5, and the import index slumping to 50.0 from April’s 57.0.

“Creighton’s survey is beginning to measure growing impacts from tariffs. June’s import reading is the lowest recorded this year, and June’s export orders index matches January’s low index,” Goss said.

As indicated by one supply manager, “In regard to tariffs, we should proceed rationally and slowly insuring that we understand the real world impact on our domestic markets.”

Other survey components

Other components of the June Business Conditions Index were new orders at 53.4, down from May’s 58.2; the production or sales index at 53.3 was down from 57.9 in May; and speed of deliveries of raw materials and supplies index at 55.6, up from last month’s 54.4 reading.

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, formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

Arkansas: The June Business Conditions Index for Arkansas advanced to 60.1 from May’s 55.9. Components of the index from the monthly survey of supply managers were new orders at 57.0, production or sales at 58.2, delivery lead time at 60.7, inventories at 61.0, and employment at 63.7.

“Recent surveys indicate that both durable and nondurable goods producers in the state are experiencing solid gains in economic activity. U.S. Bureau of Labor Statistics data show workers in the state have experienced a strong 4.9 percent gain in hourly wages over the past 12 months, well above the national gain of 3.1 percent,” Goss said.

Iowa: After two straight months of below growth neutral readings, Iowa’s, overall Business Conditions Index rose above the 50.0 threshold. The overall index for June expanded to 50.4 from May’s 47.0. Components of the overall index from the monthly survey of supply managers were new orders at 53.5, production or sales at 47.7, delivery lead time at 49.8, employment at 51.0, and inventories at 50.0.

“Recent surveys indicate both durable and nondurable goods producers in the state are experiencing positive gains in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a solid 3.6 percent increase in hourly wages over the past 12 months, above the national gain of 3.1 percent over the same period of time,” Goss said.

Kansas: The Kansas Business Conditions Index for June improved to a regional high 62.9 from 55.9 in May. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 59.2, production or sales at 66.4, delivery lead time at 63.7, employment at 61.1, and inventories at 64.0.

“Recent surveys indicate that durable manufacturers, including metal producer in the state, are experiencing positive gains in economic activity. Likewise, nondurable goods producers, including food processors, experienced positive economic conditions in recent months. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a strong 4.9 percent gain in hourly wages over the past 12 months, well above the national gain of 3.1 percent over the same period of time,” Goss said.

Minnesota: The June Business Conditions Index for Minnesota fell to 53.4 from 55.0 in April. Components of the overall June index from the monthly survey of supply managers were new orders at 51.8, production or sales at 51.2, delivery lead time at 56.9, inventories at 53.7, and employment at 53.4.

“Recent surveys indicate that durable manufacturers, including metal producer in the state are experiencing slight positive gains in economic activity. On the other hand, nondurable goods producers, including food processors, experienced slight negative economic conditions in recent months. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a solid 3.4 percent increase in hourly wages over the past 12 months, above the national gain of 3.1 percent over the same period of time,” Goss said.

Missouri: The June Business Conditions Index for Missouri climbed to 59.9 from May’s 57.1. Components of the overall index from the survey of supply managers were new orders at 63.5, production or sales at 58.0, delivery lead time at 60.5, inventories at 60.8, and employment at 56.9.

“Recent surveys indicate that both durable goods manufacturers, including metal producers, and nondurable goods producers, including food manufacturers, in the state are experiencing solid gains in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a weak 2.4 percent gain in hourly wages over the past 12 months, well below the national gain of 3.1 percent,” Goss said.

Nebraska: After falling below growth neutral last month, Nebraska’s Business Conditions Index rose above the growth neutral threshold of 50.0. The state’s overall index rose in June to 55.9 from 48.9 in May. Components of the index from the monthly survey of supply managers were new orders at 53.0, production or sales at 52.9, delivery lead time at 55.1, inventories at 55.4, and employment at 58.5.

“Recent surveys indicate that durable goods producers, including machinery manufacturers experienced slight declines in economic activity. On the other hand, nondurable goods producers, including food manufactures, in the state are experiencing solid gains in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a solid 3.3 percent increase in hourly wages over the past 12 months, slightly above the national gain of 3.1 percent,” Goss said.

North Dakota: The June Business Conditions Index for North Dakota climbed to 55.0 from May’s 49.0. Components of the overall index were new orders at 51.6, production or sales at 50.9, delivery lead time at 53.1, employment at 56.6, and inventories at 53.4.

“Recent surveys indicate that both durable goods producers, including machinery manufacturers, and nondurable goods producers, including food manufacturers, in the state are experiencing solid gains in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a strong 4.7 percent increase in hourly wages over the past 12 months, well above the national gain of 3.1 percent,” Goss said.

Oklahoma: After two straight months of below growth neutral readings, Oklahoma’s Business Conditions Index moved above growth neutral 50.0. The overall index from a monthly survey of supply managers for June jumped to 54.9 from May’s 48.9 and April’s 48.6. Components of the overall June index were new orders at 53.0, production or sales at 52.8, delivery lead time at 55.1, inventories at 55.3, and employment at 58.4.

“Except for June, recent surveys indicate that both durable and nondurable goods producers in the state experienced business pullbacks in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a strong 6.7 percent increase in hourly wages over the past 12 months, well above the national gain of 3.1 percent,” Goss said.

South Dakota: The June Business Conditions Index for South Dakota fell to a still solid 54.1 from May’s 55. Components of the overall index from the June survey of supply managers in the state were new orders at 53.4, production or sales at 58.9, delivery lead time at 49.2, inventories at 55.9, and employment at 53.3.

“Recent surveys indicate that both durable and nondurable goods producers in the state are experiencing solid gains in economic activity. U.S. Bureau of Labor Statistics data show that workers in the state have experienced a weak 2.4 percent gain in hourly wages over the past 12 months, well below the national gain of 3.1 percent,” Goss said.