Mid-America Index Falls, But Remains Solid

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rose above growth neutral for the 24th 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 a still-solid 60.0 from April's 65.9. The Mid-America report is produced independently of the national ISM.

"Creighton's monthly survey results indicate the region continues to add manufacturing activity at a solid pace, but with significant, and rising inflationary pressures. Supply chain disruptions remain the greatest challenge for the rest of 2022, according to supply managers," 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.

Even with solid economic activity, all suppliers were not optimistic about the economy. As reported by one supply manager, "We have been anticipating a major, negative economic correction; and we believe the major negative economic correction has started."

Approximately two-thirds of supply managers expect supply chain disruptions to remain the greatest economic challenge to their business for the remainder of 2022.

"Approximately one of five supply managers indicated higher inflation represented their greatest business challenge. Surprisingly, fewer than 5% named labor shortages as their greatest threat for 2022," reported Goss.

Employment: Despite healthy growth in monthly economic activity for almost two years, manufacturers in the region have added jobs at only a modest pace. That said, the employment index rose above growth neutral for the fourth straight month, but plummeted to 53.4 in May from 62.1 in April. Except for Arkansas and South Dakota, non-farm employment levels remain below pre-pandemic levels for all states in the region.

Other May comments from supply managers were:

• "People need to work as part of their life purpose. Our society has developed generations of people without a purpose since the great society movement -- and now that lack of purpose is accelerating."
• "Lack of strong leadership both nationally and inept leadership in my organization are causing considerable issues."
• "Need better energy policy. We are reaping the consequences of printing too much money."
• "Time to vote out government waste."

Wholesale Prices: The wholesale inflation gauge for the month climbed to 91.7 from April's 89.7. "Creighton's monthly survey continues to track the highest and most consistent inflationary pressures at the wholesale level in more than a quarter of a century of conducting the survey. On average, supply managers expect prices for raw materials and supplies to rise by 8.7% in the next six months, or 17.4% annualized," said Goss.

According to the U.S. Bureau of Labor Statistics, commodity prices are up approximately 21.5% over the last 12 months with farm products advancing by 34.4%, metal products expanding by 24.8% and fuels soaring by 49.0% during this same time period.

"Given current significant inflationary pressures, I expect a rate hike of one-half of one percentage point at each of the Fed's next two rate setting committee meetings, June 14-15 and July 26-27, despite the current economic slowdown and the rising probability of a recession," said Goss.

Confidence: Looking ahead six months, economic optimism as captured by the May Business Confidence Index, plummeted to a very weak 21.7 from 33.4 in April. "When asked about their economic outlook, approximately six of ten supply managers expect a downturn in economic conditions in the next six months," reported Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, fell to 53.7 from April's 60.3.

Trade: Despite supply chain bottlenecks, regional trade numbers were positive for the month. The new export orders index rose to 63.4 from April's 61.6, while the regional import reading sank to 47.5 from 59.5 in April.

Other survey components of the May Business Conditions Index: new orders sank to 59.3 from 71.5 in April; the production or sales index fell to 57.2 from 63.8 in April; and the speed of deliveries of raw materials and supplies expanded to 76.7 from April's 71.7. This higher reading indicates an upturn in supply chain disruptions and delays 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 May Business Conditions Index for Missouri dropped to 56.8 from April's 68.5. Components of the overall index from the survey of supply managers for May were: new orders at 62.5, production or sales at 55.4, delivery lead time at 74.4, inventories at 42.0 and employment at 50.0. "Non-durable goods manufacturers in the state are growing at a healthy pace with companies linked to food processing and agriculture expanding at a solid rate. Durable goods producers have experienced much slower growth over the past several months. The state's leisure and hospitality industry has benefited from this healthy growth, but employment in this industry remains 19,600 jobs (6.3%) below pre-pandemic levels," said Goss.