Growth Outlook Improves for Mid-America in December:
Inflation Gauge Lowest Level in More Than 5 Years
December survey results at a glance:
- Leading economic indicator climbs for the month.
- New hiring expanded for December.
- Businesses expect 2.5 percent wage gain for 2015, unchanged from 2014 expectations.
- Wholesale inflation gauge drops to lowest level in more than 5 years.
- Business confidence remains healthy.
For Immediate Release: January 2nd, 2014
OMAHA, Neb. – The Creighton University Mid-America Business Conditions Index for December, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, jumped from November’s tepid 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 54.4 from November’s 51.3. After hovering slightly above growth neutral for the past several months, the index from a survey of supply managers in the region moved back into a more healthy range.
“Over the past six months, a 26 percent decline in grain prices and a 13 percent plunge in fuel and related products have had negative impacts on businesses with ties to agriculture and energy. At the same time, these price declines have produced positive impacts for firms more closely tied to the consumer,” 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 moved back into a range pointing to solid, but not spectacular, job growth in the next three to six months. The job gauge advanced to 56.5 from 49.4 in November. “Businesses linked to agriculture and energy are experiencing weaker hiring conditions. At the same time, companies tied to consumer spending report expanding hiring,” said Goss.
This month supply managers reported expected wage gains for 2015. “On average, supply mangers anticipate a 2.5 percent increase, which is identical to that anticipated for 2014. Last year businesses in the region increased average weekly wages by 1.5 percent, or well below expectations. I expect regional wage growth to improve significantly for the first half of 2015,” said Goss.
Wholesale Prices: For three of the past four months, the prices-paid index, which tracks the cost of raw materials and supplies, declined for the month. The wholesale inflation index sank to 50.8, its lowest level in more than five years, and down from November’s 56.4. “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.
Last year at this time Creighton asked supply managers how much they expected the prices of goods and services they purchase to change by in the months ahead. On an annualized basis, the supply managers’ expected gain dropped by two percentage points from last year’s forecast. “Clearly, both actual and expected wholesale price gains are declining,” said Goss.
Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, dipped to a still solid 58.1 from 61.5 in November. “Weaker economic conditions in the regional energy and agriculture sectors, offset improvements in the national and regional job market in terms of supply managers’ business outlook,” said Goss.
Inventories: The inventory index, which tracks the change in the level of raw materials and supplies, improved to 53.4 from November’s 52.8. “Supply managers expanded inventories for the month, and at a slightly faster pace than in November. 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 sank to 52.7 from 57.0 in November. The import index for December climbed to 56.7 from November’s 51.0. “Over the past six months, the value of the U.S. dollar has risen by more than 10 percent against the currencies of its chief trading partners. This movement has made U.S. goods less competitively priced abroad and foreign goods more cheaply priced in the U.S. I expect this dollar weakness to result in downturns in export orders and continuing increases in imports for the region in the months ahead,” said Goss.
Other components: Other components of the December Business Conditions Index were new orders at 54.3, up from 50.7 in November; production or sales fell to 49.2 from November’s 52.2; Delivery speed of raw materials and supplies soared to 58.9 from last month’s 51.4.
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. Supplemental data was also collected from the U.S. Bureau of Labor Statistics.
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, February 2, 2015.
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