Growth Outlook Improves for Mid-America in January:
Higher Wholesale Inflation Expected
January survey results at a glance:
- Leading economic indicator climbed for the month.
- On average a 2.5 percent growth in wholesale prices is expected for 2015.
- New hiring expanded at a slower pace for the month.
- Wholesale price index remains muted, indicating very modest inflationary pressures.
- Approximately one-third of supply managers are concerned about declining customer demand, followed by one fifth who are concerned about growing regulatory costs in 2015.
- Business confidence remains very healthy.
For Immediate Release: February 2nd, 2015
OMAHA, Neb. – The Creighton University Mid-America Business Conditions Index for January, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, increased slightly from December’s reading. Indices over the past several months are pointing to positive economic gains over the next three to six months for the region.
Overall index: The Business Conditions Index, which ranges between 0 and 100, rose to 54.8 from December’s 54.4. The regional index, much like the national reading, is pointing to positive, but slow to modest growth for the first half of 2015.
“Firms such as Helmerich and Payne in Oklahoma, which are tied to energy, and John Deere with links to agriculture, have announced layoffs. I expect these job cuts to grow in the months ahead for states in the region. However, growth for companies outside of energy and agriculture will more than offset the declines in those sectors,” 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: The regional employment gauge remained in a range indicating positive but slow growth for manufacturing and value-added services firms in the region. The job gauge fell to 51.4 from December’s 56.5. “Businesses linked to agriculture and energy are laying off workers as firms outside these two sectors are expanding hiring at a healthy pace,” said Goss.
This month supply managers were asked to identify their firm’s biggest economic challenge for 2015. More than one third, or 34.7 percent, named low or declining customer demand as their top challenge while more than one-fifth, or 20.8 percent, reported growing regulatory costs as their biggest challenge for 2015. Other obstacles named were: 19.4 percent said cost of Affordable Care Act; 18.1 percent reported higher input prices; 4.2 percent listed competition from abroad; 2.8 percent said rising interest rates.
Wholesale Prices: Last month, the prices-paid index, which tracks the cost of raw materials and supplies, declined to its lowest level in five years. The wholesale inflation index for January expanded to 54.9 from December’s 50.8. “A strengthening U.S. dollar and weaker global demand have pushed inflationary pressures at the wholesale level lower over the past several months,” said Goss.
Supply managers were asked to project price growth for products that they purchase for 2015. On average, a wholesale price growth of 2.5 percent is expected, which is well above the 1.2 percent experienced for the U.S. for 2014.
Confidence: Looking ahead six months, economic optimism, as captured by the January business confidence index, advanced to 61.8 from December’s 58.1. “Improving economic expectations resulting from lower energy prices more than offset economic pessimism stemming from layoffs among energy and agriculture linked business,” said Goss.
Inventories: The inventory index, which tracks the change in the level of raw materials and supplies, fell to 50.0 from 53.4 in December.
Trade: The new export orders index unexpectedly climbed to 57.0 from December’s 52.7. The import index for January declined to 52.8 from December’s 56.7. “Over the past six months, the value of the U.S. dollar has risen dramatically against the currencies of our chief trading partners. This movement has made US goods less competitively priced abroad and foreign goods more cheaply priced in the US. Despite this, the new export orders index moved into a range indicating healthy growth in exports. I do expect exports and new export orders to move lower in the months ahead,” said Goss.
Other components: Other components of the January Business Conditions Index were new orders at 58.6, up from 54.3 in December; production or sales expanded to 60.5 from 49.2 in December; Delivery speed of raw materials and supplies sank to 53.4 from last month’s 58.9.
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 December will be released on the first business day of next month, March 2, 2015.
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