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Mid-America Economy Signals Rising Risk: Regional Inflation Adjusted Hourly Wages Sank
South Dakota Ag Connection - 02/02/2023

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell below growth neutral for a third straight month.

Overall Index: The Business Conditions Index, which uses the identical methodology as the national Institute for Supply Management (ISM) and ranges between 0 and 100 with 50.0 representing growth neutral, sank to 47.0, down slightly from 47.1 in December.

The Mid-America report is produced independently from the national ISM.

"Creighton's monthly survey of manufacturing supply managers is flashing recession warnings for 2023. This marked the lowest January reading for the overall, or business conditions index, since 2008, the beginning of the Great Recession," 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. "The overall Business Conditions Index has now declined for eight of the past nine months. Approximately 60% of supply managers expect the economy to slump into a recession in 2023."

Employment: Despite solid growth in monthly economic activity over the past several months, manufacturers in the region have added jobs at only a modest pace. Compared to pre-pandemic levels, regional seasonally adjusted nonfarm employment is down slightly from pre-COVID levels for most states in the region.

The new hiring index dropped below growth neutral for the third time in the past four months to 46.3 from December's solid 54.2.

"In January, 25.9% of manufacturers reported a reduction in workforce compared to only 8.3% in December," said Goss.

Other January comments from supply managers were:

- "The past couple weeks, several of our distributors seemed to have taken a step back with both employee and product shortages. The worst part is there is no prior communication, leaving us without product and having to scramble for replacements."

- "Entertainment is up. Food and Beverage sales are up."

- "We are heading for a recession."

- "Recession. Government keeps spending and regulating. We will muddle through."

- "Need more free trade agreements." Wholesale Prices: The wholesale inflation gauge for the month soared to 74.1 from December's 52.1.

"As a result of recent moderation in inflationary pressures, I expect the Federal Reserve to announce a more restrained rate hike of 25 basis points (0.25%) to combat inflation at its meeting today, Feb. 1," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the January Business Confidence Index, increased to a very weak 25.0 from 23.0 in December. "Supply managers named supply delays and disruptions as their firm's greatest threats for 2023," said Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, sank to 38.9 from December's 52.1. "After months of stockpiling inventories, manufacturing firms have begun returning inventory to normal levels," said Goss.

Trade: Trade numbers were down for January with export orders falling to 42.8 from 43.3 in December. Additionally, firms continue to report weak imports due to a weakening regional economy. The January reading dropped to 34.3 from December's 36.8.

Other survey components of the January Business Conditions Index were: new orders increased to 44.5 from 37.6 in December; the production, or sales index, climbed to 50.0 from 39.6 in December; and the speed of deliveries of raw materials and supplies expanded to 55.5 from December's 52.1. This monthly increase indicates greater supply chain disruptions with more bottlenecks for the month.

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 January Business Conditions Index for South Dakota declined to a still solid 55.2 from December's regional high of 57.3. Components of the overall index from the January survey of supply managers in the state were: new orders at 44.5, production or sales at 51.7, delivery lead time at 58.0, inventories at 53.4 and employment at 68.5. According to U.S. Bureau of Labor Statistics wage data, the state's average inflation adjusted hourly wage rate fell by 2.6% in 2022.

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