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Mid-America Manufacturing Strong: Shipping and Transportation Slow Recovery
South Dakota Ag Connection - 04/02/2021

For a 10th straight month, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, remained above growth neutral.

Overall Index: The Business Conditions Index, which ranges between 0 and 100, slipped to 68.9 from February's very strong 69.6. Creighton's regional manufacturing activity gauge is surging, but supply bottlenecks and labor continue to restrain growth.

From both February and March surveys, approximately eight of 10 manufacturing supply managers reported that bottlenecks in receiving raw materials and supplies from vendors was curtailing what could be even stronger growth,

As reported by supply manager, "My firm is incurring major delays in inputs for our products, most likely extending into Q3 and Q4."

"Since bottoming out in April, the region has regained almost 60,000 of the manufacturing jobs lost to COVID-19. Creighton's monthly survey results indicate that the region is adding jobs and economic activity at a healthy pace, and that growth will remain healthy well into the second half of 2021," 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 regional employment index remained well above growth neutral for March, but sank from 65.6 in February to 60.0 in March. "Compared to pre-COVID-19 levels, according to U.S. Bureau of Labor Statistics, Mid-America manufacturing employment is down almost 60,000 jobs, or 4.1%, while average hourly manufacturing wages are 1.9% higher," said Goss.

Other comments from March survey participants:

- "My firm is experiencing steel shortages, plastics and resin shortages, components from overseas supplier shortages."

- "I am physically located in South Dakota, but, answered these questions in regards to all of the plants I deal with (SD, MN, NC, OH, AR, Canada, Juarez and Monterrey Mexico)."

- "We are seeing supply delays for all issues listed."

- "It is not just Covid causing the shortages. Issues: 1) Hurricanes last fall disrupting supply; 2). The Winter storm disrupting supply; 3). Industrial buyers panicking and hoarding."

- "The Biden (Harris) administration's fiscal actions will continue to pressure inflation, drive up unemployment, and lower consumer confidence. The crash is around the corner."

Wholesale Prices: The wholesale inflation gauge for the month dipped slightly to 94.0 from February's record high 95.2.

As reported by a supply manager, "I purchase a lot of steel components and the increases are ridiculous. Steel availability is tight. I see hyperinflation coming."

"At the wholesale level, Creighton's survey is tracking higher and higher inflationary pressures. Metal products and lumber, for example, are experiencing significant upward pressures in prices. Since June of last year, metal prices have expanded by 14% and lumber products have advanced by 22% according to U.S. Bureau of Labor Statistics data. Despite rapidly expanding inflationary pressures at the wholesale level, the Federal Reserve remains committed to its current expansionary policy," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the March Business Confidence Index, climbed to a solid 58.0 from February's 50.0.

"Despite supply bottlenecks and rapidly rising prices, the expanding U.S. economy pushed economic confidence among manufacturing supply managers higher for the month," said Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, rose to 62.5 from last month's 53.4.

In addition to issues related to California port delays in obtaining supplies and raw materials, supply managers detailed significant delays. Approximately 27% identified shipping and transportation delays as the top factor accounting for delays. Approximately 29% indicated that supplier cutbacks and shutdowns were the prime factor slowing deliveries, and one-third reported that supplier's capacity constraints were the major factor slowing deliveries.

Trade: Despite supply chain bottlenecks, regional trade numbers were strong for the month. The new export orders index fell to a healthy 63.9 from February's 70.5. An expanding domestic manufacturing sector boosted imports to 64.0 from 58.3 in February.

"I expect rising U.S. interest rates relative to that of trading partners to boost the value of the U.S. dollar in the months ahead. This increase in the value of the U.S. dollar will make U.S. goods less competitively prices abroad and put downward pressure on exports. At the same time, the rising dollar will support higher imports. Even so, the outlook looks positive for the export of U.S. goods and commodities for the first half of 2021," said Goss.

Other survey components of the March Business Conditions Index were: new orders fell to 70.9 from 79.0 in February; the production or sales index fell to a still strong 70.0 from February's 76.6; and the index for the speed of deliveries of raw materials and supplies rocketed to 81.3, a record high, indicating rising supply delays, from last month's 73.5.

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 (ISM), formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

The March Business Conditions Index for South Dakota climbed to 69.4 from 64.0 in February. Components of the overall index from the February survey of supply managers in the state were: new orders at 69.1, production or sales at 77.9, delivery lead time at 76.1, inventories at 62.2, and employment at 61.7. "Compared to pre-COVID-19 levels, according to U.S. Bureau of Labor Statistics, South Dakota manufacturing employment is down 1,200 jobs, or 2.7%, while average hourly manufacturing wages are 2.1% higher," said Goss.

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