Mid-America Index highest Since March 2019 but jobs curtailed

The July Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, advanced above growth neutral, and to its best level since March 2019.

After falling below growth neutral for three straight months, the overall index bounced into positive territory for June and July. The Business Conditions Index, which ranges between 0 and 100, increased to 57.4 from June’s 50.3.

“While the June and July’s readings were much higher than I expected, they provide no grounds for celebration. It will take many more months of above 50.0 readings before the regional economy returns to pre-COVID-19 levels,” 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.

Employment

The July employment index continued to indicate job losses, but at a slower pace than in June. The July index rose to 48.5 from June’s 38.9. More than half, or 55%, compared to 49% in April, reported cuts in hiring due to COVID-19.

According to U.S. Department of Labor data between pre-COVID-19 levels (February) and June the region lost 64,500 manufacturing jobs (-5.8%), and 888,000 jobs (-6.5%) total nonfarm jobs. While I expect job losses to continue, I anticipate that the rate will diminish considerably in the weeks and months ahead,” Goss said.

Wholesale prices

The wholesale inflation gauge for the month indicated an upturn in wholesale prices from June, with a wholesale price index of 65.2, up from 59.7 in June.

“Despite July’s higher reading, I expect to see little inflationary pressures at the wholesale level in the weeks and months ahead, even with the massive economic stimulus programs from the Federal Reserve and the U.S. government,” Goss said.

Other July comments from supply managers:

“The most significant aspect of coronavirus has been much lower sales. We are starting to rebound, but it is likely that we will never recover what we have lost.”

“My positive/up rating for the economy is predicated on President Trump being re-elected. It would change to negative/down based on a liberal elected to the presidency.”

“The most significant COV related negative outcome for our company has been the reduced sales pull from our customers, creating a ripple effect—reduced purchases and internal furloughs/permanent reductions.”

Confidence

Looking ahead six months, economic optimism, as captured by the July Business Confidence Index, climbed to a strong 68.3, its highest level since April 2018, and up from 65.3 in June.

“The federal stimulus plan, the Federal Reserve monetary incentive programs, and firm U.S. stock markets boosted confidence from June’s already solid reading,” Goss said.

The regional inventory index for July, reflecting levels of raw materials and supplies, sank to 45.3 from last month’s 52.8.

The regional trade numbers were mixed with new export orders rising to a weak 47.9 from June’s 26.4 and May’s record low of 15.9. Imports, on the other hand, rose to 53.9 from June’s 32.0.

The U.S. Department of Commerce recently announced that June exports were 24% below year-ago levels. “Our July readings point to a continuation of this negative trend, but at a lower pace,” said Goss.

For July, seven of 10 supply managers reported that COVID-19 has produced shipping difficulties for their firm. This share is up significantly from the 51% of April survey participants that indicated such problems.

Other components of the July Business Conditions Index were new orders at 67.2, up from 54.2 in June; the production or sales index expanded to 65.2 from June’s 52.9; and speed of deliveries of raw materials and supplies index at 61.2 up from last month’s 52.8 (indicating slower deliveries for July).

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.

State reports

Goss thought job growth throughout the surveyed region will be tempered as he provided insight into each reporting state.

The July Business Conditions Index for Arkansas rose to 61.0 from June’s 50.9. Components from the monthly survey of supply managers were: new orders at 68.7, production or sales at 67.6, delivery lead time at 66.0, inventories at 46.7, and employment at 56.0. “According to U.S. Bureau of Labor Statistics (BLS) data since the onset of COVID-19, Arkansas has lost 63,000 jobs, or approximately 5% of its total employment, and 16,000, or approximately 10%, of its manufacturing employment.”

Iowa’s Business Conditions Index inched above growth neutral for the month. The reading climbed to a 50.9 from 47.1 in June. Components of the overall July index from the monthly survey of supply managers were: new orders at 66.4, production. or sales at 57.9, delivery lead time at 64.4, employment at 29.0, and inventories at 37.0. “According to BLS data since the onset of COVID-19, Iowa has lost 108,000 jobs, or approximately 6.8% of its total employment, and 5,400, or approximately 2.4% of its manufacturing employment. Our surveys point to continued job losses in the months ahead.”

The Kansas Business Conditions Index for July increased to 59.2 from June’s 45.1. Components of the leading economic indicator from the monthly survey of supply managers for July were: new orders at 68.0, production or sales at 64.8, delivery lead time at 53.1, employment at 48.3, and inventories at 61.7. “According to BLS data since the onset of COVID-19, Kansas has lost 78,000 jobs, or approximately 5.5% of its total employment, and 10,400, or approximately 6.2% of its manufacturing employment. Our recent surveys point to only slight job losses in the months ahead.”

The July Business Conditions Index for Minnesota climbed to 54.7 from 45.0 in June. Components of the overall June index from the monthly survey of supply managers were: new orders at 65.0, production or sales at 52.3, delivery lead time at 64.5, inventories at 42.3, and employment at 49.2. “According to BLS data since the onset of COVID-19, Minnesota has lost 249,000 jobs, or approximately 8.4% of its total employment, and 21,600, or approximately 6.7% of its manufacturing employment. Our surveys point to only slight job losses in the months ahead.”

The July Business Conditions Index for Missouri sank to 44.7 from June’s 50.5. Components of the overall index from the survey of supply managers for July were: new orders at 66.6, production or sales at 58.9, delivery lead time at 25.4, inventories at 40.6, and employment at 31.8. “According to BLS data since the onset of COVID-19, Missouri has lost 189,000 jobs, or approximately 6.6% of its total employment, and 16,000, or approximately 5.9% of its manufacturing employment. Our surveys point to continued job losses in the months ahead.”

The state’s overall index for July rose to 68.6 from 52.6 in June. Components of the index from the monthly survey of supply managers for July were: new orders at 68.6, production or sales at 67.2, delivery lead time at 62.1, inventories at 70.1, and employment at 55.0. “According to BLS data since the onset of COVID-19, Nebraska has lost 56,000 jobs, or approximately 5.4% of its total employment, and 2,900, or approximately 2.9%, of its manufacturing employment. Our surveys point to only slight job gains in the months ahead.”

The July Business Conditions Index for North Dakota sank to 45.5 from 51.6 in June. Components of the overall index for July were: new orders at 66.7, production or sales at 59.3, delivery lead time at 27.0, employment at 32.8, and inventories at 41.8. “According to BLS data since the onset of COVID-19, North Dakota has lost 37,000 jobs, or approximately 8.5% of its total employment, and 1,300, or approximately 5% of its manufacturing employment. Our surveys point to continued job losses in the months ahead.”

The state’s Business Conditions Index moved above growth neutral in July. The overall index advanced to 69.0 from June’s 53.1. Components of the overall July index were: new orders at 69.0, production or sales at 69.2, delivery lead time at 73.6, inventories at 77.2, and employment at 60.6. “According to BLS data since the onset of COVID-19, Oklahoma has lost 83,000 jobs, or approximately 4.9% of its total employment, and 9,200, or approximately 6.7% of its manufacturing employment. Our recent surveys point to slight job gains in the months ahead.”

The July Business Conditions Index for South Dakota increased to 61.0 from June’s 52.4. Components of the overall index from the July survey of supply managers in the state were: new orders at 68.2, production or sales at 65.6, delivery lead time at 56.5, inventories at 64.2, and employment at 50.3. “According to BLS data since the onset of COVID-19, South Dakota has lost 24,500 jobs, or approximately 5.6% of its total employment, and 1,300 or approximately 3% of its manufacturing employment. Our recent surveys point to only slight job gains in the months ahead.”

July survey highlights

Driven by higher new orders, the Business Conditions Index expanded to its peak reading since March 2019.

Manufacturing job losses continue for the region. According to the latest jobs data, the region has lost almost 90,000 manufacturing jobs (5.8%) since COVID-19 onset.

Reported impacts of COVID-19 for July:

• Eight of 10 supply managers detailed negative overall impacts.
• Approximately 55% reported job reductions compared to April’s 49%.
• Worker absences have declined 13% since April.
• Seven of 10 supply managers reported shipping problems.
• Business confidence rose to its best reading since April 2018.