After falling below growth neutral for three straight months, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rebounded to its highest level since July of last year.
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, climbed to 56.1 from 47.0 in January.
The Mid-America report is produced independently from the national ISM.
“After flashing recession warning signals for three consecutive months, Creighton’s monthly survey of manufacturing supply managers rebounded to its highest level since July of last year,” 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.
“While it’s too early to tell if this is an end to the downward trend, it was certainly promising on the growth front. However, the soaring inflation reading serves as a very negative signal for financial markets and the Federal Reserve,” said Goss.
On the other hand, four of ten supply managers surveyed expect a national recession in 2023.
Employment: After dropping below growth neutral for three of the last four months, the regional hiring gauge rose above the growth neutral threshold to a tepid 52.8 from 46.3 in January.
Due to labor shortages and excessive inflation, almost one half of firms reported raising entry level wages to match the inflation rate, while another 20% reported raising entry level wages above the rate of inflation to recruit new employees.
As stated by one supply manger, “The new hires coming in, compared to the seasoned pro pay gap, has always been a struggle…it is even worse now. We will have to adjust incumbents to protect our culture. Difficult tightrope to walk.”
Other February comments from supply managers were:
- “Contraction in fourth quarter was substantial. Similar contraction in first quarter 2023 to date. Perhaps excess inventories throughout supply chain have been cleared out. Not sure where the new demand level will be.”
- “I do see a slowing down on new orders coming in. I'm hoping this is just a small setback and not the trend.”
- “We are still having a hard time finding workers even with increased starting wages. Our operation is in a small community that has a major drug company and a large refinery, so that has always hampered our potential employee pool.”
- “2022 was one of the best years we've had for sales growth and earnings. 2023 will take tremendous focus by all our functions if we are expected to provide the same or similar results. Our government could do a better job at reducing costs and removing hurdles relating to business, trade, currency, etc.”
Wholesale Prices: The wholesale inflation gauge for the month soared to 80.6 from January’s 74.1 and December’s 52.1.
“Much like the recent rapid expansion in wholesale price inflation at the national level, Creighton’s survey is pointing to greater input price pressures at the producer level, or what is often referred to as the wholesale price index,” said Goss.
“As a result of recent elevation in inflationary pressures at the wholesale level, I expect the Federal Reserve’s rate setting committee to announce a more aggressive rate hike of 50 basis points (0.50%) at its March 21-22 meetings to combat elevated inflation,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the February Business Confidence Index, increased to a very weak 38.1 from 25.0 in January. “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, advanced to a strong 58.4 from January’s 38.9. “Manufacturing firms have begun returning inventory to normal levels. This is stimulative of growth,” said Goss.
Trade: Trade numbers were down significantly for February with export orders falling to 35.0 from 42.8 in January. Additionally, firms continued to report weak imports due to a weakening regional economy. The February import reading did rise to a weak 42.3 from 34.3 in January.
Other survey components of the February Business Conditions Index were: new orders increased to 55.5 from 44.5 in January; the production, or sales index, climbed to 58.3 from 50.0 in January; and the speed of deliveries of raw materials and supplies expanded slightly to 55.6 from January’s 55.5. The increase indicates greater supply chain disruptions with more delivery 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 state’s February Business Conditions Index climbed to 52.7 from January’s 42.1. Components of the overall index from the survey of supply managers for February were: new orders at 55.2, production or sales at 56.2, delivery lead time at 51.8, inventories at 41.3 and employment at 58.7. Manufacturers in the state are experiencing positive growth with strong job gains. Food processors, computer and electronic manufacturers and transportation equipment producers are experiencing solid growth over the past several months.
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