Mid-America Business Conditions Index Rises to Healthy Level

The August Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Arkansas to North Dakota, climbed to a solid reading according to the latest monthly survey results.

Overall index: The Business Conditions Index, which ranges between 0 and 100, rose to 57.5 from July's 56.1. This is the ninth straight month the index has remained above growth neutral, continuing to point to positive growth for the region over the next three to six months.

"The overall index over the past several months indicates a healthy regional manufacturing economy, and points to solid growth for both manufacturing and non manufacturing for the rest of 2017," 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.

Employment: The August employment index once again jumped above growth neutral with a healthy reading of 59.2, and up from Julys 56.5. Both the durable, nondurable and nonmanufacturing sectors are adding jobs at a solid pace. Except for manufacturing tied to agriculture, businesses across the region added jobs at a solid pace for the month. With the recent boost in employment growth, total regional employment growth (year over year) is now 1.4 percent, and slightly below the nations 1.5 percent gain over the same time period, said Goss.

Wholesale Prices:
After falling for two straight months, the regional wholesale inflation gauge rose to a level indicating modest inflationary pressures. The wholesale price index increased to 65.5 from Julys 62.0.

"Given modest inflationary reading from our surveys and government surveys over the past several months, I expect the Federal Reserve to raise short term interest rates no earlier than December. I do, however, anticipate the Fed will announce plans to begin the sale of its $4.5 trillion bond portfolio. As a result of monthly sales, long-term interest rates, including mortgage rates, are apt to rise at a slow pace in the months ahead," said Goss.

Confidence:
Looking ahead six months, economic optimism, as captured by the August business confidence index, jumped to a strong 62.5 from 60.2 in July. Strong profit growth, still low interest rates, and international sales boosted the economic outlook among supply managers in the nine-state region, reported Goss.

However, as reported by one supply manager, Forecasted sales tied with governmental activities are all showing signs of softening in the back half of the year, causing our slow down now.

Thus, the economic hurdles of the national debt ceiling, a potential U.S. budget impass, tax reform and shipping bottlenecks tied to Hurricane Harvey may weigh on economic confidence in the next month.

Inventories: The August inventory index, which tracks the change in the level of raw materials and supplies bounced to 56.5 from Julys 50.0.

Trade: The regional new export orders index slipped to 52.8 from 54.3 in July, and the import index inched higher to 50.1 from Julys 50.0. A weaker U.S. dollar, making imported purchases more expensive held imports down to almost growth neutral. On the other hand, the weaker U.S. dollar, making regional goods more competitively priced abroad, pushed the new export order index above growth neutral, said Goss.

Approximately, 43 percent of supply managers reported the export of their firms goods was an important factor influencing profitability.

However, several supply managers indicated that the export of important regional commodities that normally travel through the Port of Houston will be negatively impacted in the weeks and months ahead. For example, exports of commodities such as ethanol, hard red winter wheat, corn and soybean will be slowed by port bottlenecks in the short term, said Goss.

Other components: Components of the August Business Conditions Index were new orders at 53.8, down from 60.8 in July; production or sales index was 62.5, up from Julys 57.7; and delivery speed of raw materials and supplies expanded slightly to 55.7 from last months 55.5.

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 groups 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.


Arkansas: The August overall index for Arkansas advanced to 65.9 from Julys 61.2. Components of the index from the monthly survey of supply managers were new orders at 61.3, production or sales at 70.1, delivery lead time at 65.6, inventories at 64.7, and employment at 68.0. Arkansas is adding manufacturing jobs at an annual pace above 2.2 percent and nonmanufacturing at a rate exceeding 2.5 percent. Our surveys over the past several months indicate this positive trend will continue for the remainder of 2017, said Goss.

Iowa: The August Business Conditions Index for Iowa expanded to 57.7 from 54.9 in July. Components of the overall index from the monthly survey of supply managers were new orders at 53.6, production or sales at 62.3, delivery lead time at 56.4, employment at 59.4, and inventories at 56.6. The state is adding manufacturing jobs at an annual pace slightly below 1 percent and nonmanufacturing employment at a rate slightly above 1 percent. Our surveys over the past several months indicate this positive, but modest, trend will continue for the remainder of 2017, said Goss.

Kansas: The Kansas Business Conditions Index for August slumped to a regional low of 42.8 from Julys 45.9, also a regional low. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 39.8, production or sales at 48.3, delivery lead time at 40.0, employment at 44.1, and inventories at 42.0. Kansas is shedding manufacturing jobs at an annual pace of one-half of one percentage point and losing nonmanufacturing at an annual rate of almost 1 percent. Our surveys over the past several months indicate this negative trend will continue for the remainder of 2017, said Goss.

Minnesota: The August Business Conditions Index for Minnesota declined to a still healthy 61.8 from Julys 63.2. Components of the overall August index from the monthly survey of supply managers were new orders at 57.5, production or sales at 66.2, delivery lead time at 61.0, inventories at 60.7, and employment at 63.8. The state is adding manufacturing jobs at an annual pace of approximately 1 percent, and growing nonmanufacturing employment at a rate exceeding 2 percent. Our surveys over the past several months indicate this positive trend will continue for the remainder of 2017, said Goss.

Missouri: The August Business Conditions Index for Missouri jumped to 61.1 from 52.3 in July. Components of the overall August index from the survey of supply managers were new orders at 56.8, production or sales at 65.5, delivery lead time at 60.2, inventories at 60.0, and employment at 63.0. Missouri is adding manufacturing jobs at an annual pace of approximately 2.5 percent and adding nonmanufacturing employment at a rate exceeding 2 percent. Our surveys over the past several months indicate this positive and healthy trend will continue for the remainder of 2017, said Goss.

Nebraska: The August Business Conditions Index for Nebraska fell slightly to 57.9 from 58.0 in July. Components of the index from the monthly survey of supply managers were new orders at 53.8, production or sales at 62.5, delivery lead time at 56.7, inventories at 56.8, and employment at 59.7. The state is adding manufacturing jobs at an annual pace of almost 1.5 percent and growing nonmanufacturing employment at a rate of approximately 1.2 percent. Our surveys over the past several months indicate this positive trend will continue for the remainder of 2017, said Goss.

North Dakota: North Dakotas overall, or Business Conditions Index, soared above growth neutral for the month. The index for August from a survey of supply managers climbed to a regional high 69.1 from Julys 66.7, also a regional high. Components of the overall index were new orders at 64.3, production or sales at 73.1, delivery lead time at 69.1, employment at 71.3, and inventories at 67.8. While the state is losing manufacturing jobs at an annual pace of approximately 2 percent, North Dakota is growing jobs linked to energy and nonmanufacturing employment at a rate exceeding 1.5 percent. Our surveys over the past several months indicate this positive trend will gain steam for the remainder of 2017 as the states energy sector boosts the overall state economy, said Goss.

Oklahoma: After falling below growth neutral for July, Oklahomas Business Conditions Index rose above the 50.0 threshold for August. The overall index from a monthly survey of supply managers climbed to a solid 56.2 from 49.4 in July. Components of the overall August index from a survey of supply managers in the state were new orders at 52.2, production or sales at 60.9, delivery lead time at 54.7, inventories at 55.1, and employment at 57.9. The state is adding manufacturing jobs at an annual pace of almost 2 percent and growing nonmanufacturing employment at a rate slightly above 1 percent. Our surveys over the past several months indicate this positive trend will continue for the remainder of 2017, said Goss.

South Dakota: The Business Conditions Index for South Dakota plummeted to 45.5 from Julys 53.3. Components of the overall index for the August survey of supply managers in the state were new orders at 43.1, production or sales at 47.1, delivery lead time at 43.9, inventories at 45.5, and employment at 47.8. South Dakota is shedding manufacturing jobs at an annual pace of approximately 1 percent, but growing nonmanufacturing employment at a rate only slightly above 0.3 percent. Our surveys over the past several months indicate this sluggish trend will continue for the remainder of 2017, said Goss.

Survey results for September will be released on Oct. 2, the first business day of the month.

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Story source: creighton.edu

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