Missouri Ag Connection - November Mid-America Business Conditions Weak

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November Mid-America Business Conditions Weak
Missouri Ag Connection - 12/06/2016

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for a nine-state region stretching from Arkansas to North Dakota, rose to a still weak reading for November.

Overall index: The Business Conditions Index, which ranges between 0 and 100, rose in November but remained below growth neutral at 46.5, up from October's 43.8. This is the fifth straight month the index has moved below growth neutral 50.0. Like the national survey of supply managers, our regional survey is indicating the manufacturing sector continues to experience weak to negative growth.

"Weakness among manufacturers linked to agriculture, energy and international markets continue to weigh on regional economic conditions. Due to the heavy dependence of the region on agriculture and energy, I expect the overall regional economy to continue to underperform the national economy. Despite the decline in manufacturing, the nonmanufacturing sector of the regional economy is expanding, albeit at a slow pace," 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 indicates the nine-state manufacturing sector continues to lose jobs, as the index fell below growth neutral for the sixth straight month. The job gauge for November declined to 41.9 from October's 44.4. "The growth gap between regional manufacturing and nonmanufacturing remains wide. Over the last 12 months, U.S. Bureau of Labor Statistics data indicate the region's manufacturing sector lost more than 16,000 jobs, a 1.2 percent decline, while regional nonmanufacturing added almost 102,000 jobs, an increase of a sub-par 0.8 percent," said Goss.

This month, supply managers indicated they expect their businesses to increase 2017 wages by 2.7 percent over 2016 levels. "Manufacturing wage growth continues to expand, but at a tepid pace for producers in the region," said Goss.

Consistent with slow wage growth, supply managers see slow to negative growth for the near term as the biggest threat facing their business.

Wholesale Prices: The wholesale inflation gauge remained in a range indicating modest inflationary pressures at the wholesale level, as the prices-paid index climbed to 57.5 from October's 57.4.

"Even though wholesale price inflation remains in a range indicating only modest upward price pressures, I expect the Federal Reserve to raise interest rates at the December meeting of the rate setting committee. Markets will be paying close attention to remarks coming out of the Fed's rate meeting on Dec. 14. While a rate hike is expected, language indicating more rate hikes to follow will jolt markets," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the November business confidence index, soared to 61.6 from a frail 39.7 in October. As expressed by one supply manager, "So glad the election is over. Let's go to work."

Inventories: The November inventory index, which tracks the change in the level of raw materials and supplies, advanced to a weak 42.8 from October's 38.5.

Trade: The new export orders index fell to 45.7 from 47.3 in October, and the import index increased slightly to 46.4 from October's 44.6. "Supply managers reported that slowing global economic conditions were restraining export growth while the domestic manufacturing slowdown was curtailing buying from abroad," said Goss.

Other components: Components of the November Business Conditions Index were new orders at 46.4, up from 41.4 in October; production or sales index was 48.2, up from 39.1 in October; and delivery speed of raw materials and supplies declined to 53.6 from last month's 55.6.

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 November Business Conditions Index for Missouri rocketed to 55.1, a regional high, from October's 41.6. Components of the overall November index from the survey of supply managers were new orders at 48.6, production or sales at 50.5, delivery lead time at 59.8, inventories at 59.9, and employment at 56.7. "Both durable and nondurable goods producers recorded slight losses for the month," said Goss. Percent change in jobs over last 12 months; Manufacturing, -0.3 percent; All nonfarm, 1.8 percent.

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