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Missouri Ag Connection - 12/04/2017

While the November Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Arkansas to North Dakota, declined for the month, the reading still points to healthy economic growth ahead, according to the latest monthly survey results.

Overall index: The Business Conditions Index, which ranges between 0 and 100, slipped to a still healthy 57.2 from October's 58.8. This is the 12th 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.

"Both the national and our regional indices indicate the manufacturing sector is advancing at a very healthy pace and that this expansion will spill over into the broader national and regional economies in the next three to six months. Both durable and nondurable goods manufacturers have reported consistent growth over the past several months," 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 November employment index remained above growth neutral with a reading of 53.6, up from 52.9 in October. "The durable, nondurable and nonmanufacturing sectors are adding jobs at a solid pace. Over the past 12 months, the regional manufacturing sector has added approximately 25,000 jobs, a 1.8 percent expansion. This annual regional manufacturing growth rate significantly exceeds the 1.3 percent growth for U.S. manufacturing," said Goss.

Despite solid employment growth, supply managers expect their firms to raise wages and salaries by only 2.6 percent in 2018.

Wholesale Prices: For a second straight month, the regional wholesale inflation gauge cooled to a still strong 71.4 from October's 75.0, continuing to indicate elevated regional inflationary pressures at the wholesale level.

"Given elevated inflationary readings from our surveys and government surveys over the past several months, I expect the Federal Reserve to raise short term interest rates this month. However, this increase will not dampen economic activity in the region to any great extent," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the November business confidence index, expanded to a very strong 71.9 from 63.8 in October. "Healthy profit growth, still low interest rates, and the potential passage of a tax reform package pushed business confidence higher for the month," reported Goss.

This month supply managers were asked their assessment of the current tax reform bill before Congress. Approximately 42.1 percent support the bill, while 19.3 percent oppose the package, and 38.6 percent neither support nor oppose the current bill.

Inventories: The November inventory index, which tracks the change in the level of raw materials and supplies, advanced to 56.1 from October's 53.0.

Trade: The regional new export orders index soared to 65.8 from October's solid 54.3, and the import index jumped to 59.8 from 58.6 in October. "Expanding regional growth spurred purchases of inputs from abroad, while growth among important trading partners boosted the new export orders to a healthy level," said Goss.

Other components: Components of the November Business Conditions Index were new orders at 67.6 from 61.3 in October; the production or sales index rose to 64.8 from October's 67.4; and delivery speed of raw materials and supplies slumped to 42.6 from last month's 56.5.

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 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 rose to 59.2 from 53.8 in November. Components of the overall November index from the survey of supply managers were new orders at 69.9, production or sales at 61.8, delivery lead time at 46.9, inventories at 62.7, and employment at 54.6. "Over the past 12 months, Missouri increased manufacturing employment by 2.6 percent, or approximately 6,900 manufacturing jobs. Strong gains were recorded by both durable goods producers, including vehicle manufacturers, and nondurable goods producers, including food processors," said Goss.

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