Growth Slows for Mid-America for October:
Downturn in Hiring and Export Orders
October survey results at a glance:
- Leading economic indicator was down for the month.
- New export orders decline for the month.
- Businesses cut employment for October.
- Average wage gain of 1.6 percent expected for next year.
- Wholesale pressures remain modest for the last several months.
For Immediate Release: November 3, 2014
OMAHA, Neb. – The Mid-America Business Conditions Index for October, a leading economic indicator for a nine-state region, stretching from North Dakota to Arkansas, slumped from September’s solid reading. Indices over the past several months are pointing to positive, but slower, economic gains over the next three to six months for the region.
Overall index: The Business Conditions Index, which ranges between 0 and 100, fell to 51.8 from September’s 54.3. After rising to its highest level in more than three years in June, the overall reading has hovered in a range pointing to positive, but slower, growth for the overall regional economy over the next three to six months.
“Sharp declines in grain and crude petroleum prices drove the overall index down for the month. Even with the pullback, economic growth is expected to be positive, but somewhat slower in the next several months. October weakness in rural areas of the region offset stronger conditions in urban areas of the nine-states,” said Ernie Goss, Ph.D., director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.
Employment: For the second time in the past three months, the employment index moved below the growth neutral threshold of 50.0. The job gauge fell to 43.1 from September’s much stronger 53.5 and August’s 48.7. “Businesses tied to agriculture and energy are experiencing weaker economic conditions. At the same time, businesses seeking to hire skilled workers are reporting a lack of qualified applicants,” said Goss.
“There is currently a record number of workers employed in the region. Even so, employers in the region continue to expand output primarily by increasing hours worked of current workers and adding temporary workers,” said Goss. “I think the October decline is temporary with hiring likely to remain on a positive pace.”
This month supply managers were asked how much they expect wages and salaries for workers in their firm to grow in the next year. On average, growth of 1.6 percent is expected, which is less than the growth estimate in March 2014 of 1.8 percent.
Wholesale Prices: After three straight monthly declines, the prices-paid index, which tracks the cost of raw materials and supplies, rose for the month. The wholesale inflation index advanced to 60.6 from September’s 60.1. Even with the slight increase, inflationary pressures at the wholesale level remain moderate.
This month supply managers were also asked to estimate the price change for the next 12 months for raw materials and supplies purchased. On average an increase of 5.8 percent for the next 12 months is expected. This is up from the 4.8 percent estimated in March of this year.
Confidence: Looking ahead six months, economic optimism, as captured by the October business confidence index, climbed to 61.2 from 59.6 in September. “Despite weaker economic conditions in the regional energy and agriculture sectors, improvements in the national and regional job market supported supply managers’ business outlook,” said Goss.
Inventories: The inventory index, which tracks the level of raw materials and supplies, decreased to 51.4 from September’s 52.0. “Supply managers expanded inventories for the month, but at slower pace than in September. This is yet another signal that supply managers remain reasonably upbeat about the economy as they increased inventories in anticipation of expanding sales for their companies in the months ahead,” said Goss.
Trade: The new export orders index declined again to 48.8 from 53.2 in September. The import index for October increased to 52.9 from September’s 52.8. “The significant increase in the value of the dollar this year has made U.S. goods less competitively priced abroad and increased the attractiveness of foreign goods sold in the U.S. Combined with slower global growth, I expect our export reading to soften even more in the months ahead,” said Goss.
Delivery speed. The delivery lead time index decreased to 56.2 from 59.0 in September. “Business in the region continue to report supply bottlenecks in obtaining timely delivery of raw materials and supplies,” said Goss.
Other components: Other components of the October Business Conditions Index were new orders at 53.6, up from 52.9 in September; production or sales rose to 55.0 from last month’s 54.3.
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 by the National Institute for Supply Management, formerly the Purchasing Management Association, since 1931.
Survey results for July will be released on the first business day of next month, December 1st.
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