New Export Orders Push Index to Healthy Level:
Concerns Raised Over China’s Rejection of U.S. DDGs
June survey results at a glance:
- The Business Conditions Index climbed to highest level since March 2011.
- Growth in domestic and export orders over the past three months is the strongest since the second quarter of 2010.
- Supply managers linked to bioenergy in the region raised concerns over China’s recent decision to reject importation of U.S. dried distillers grains (DDGs).
- Employment index surges to highest level in two years.
- Businesses expect 2015 health insurance premiums to rise by 7.4 percent from 2014 levels.
- Inflation gauge declines, but is at a level indicating elevated inflationary pressures at wholesale level
For Immediate Release: July 1, 2014
OMAHA, Neb. – The Mid-America Business Conditions Index for June, a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas, points to healthy and improving growth in the next three to six months.
Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 60.6 from 60.5 in May. “This is the highest overall reading that we have recorded since March 2011. Not since the second quarter of 2010 have we recorded new orders growth above that of the second quarter of this year. Production and delivery of these orders in the months ahead will underpin regional economic growth,” 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: Businesses have expanded employment at a brisk pace for the past three months. The employment index for June rose to 61.4, its highest level in two years, and up from last month’s 60.0. “Growth among durable goods manufacturers in the region is pushing overall employment growth higher. Except for Arkansas and Missouri, all states in the region have regained all jobs lost during the recession. Regional job growth for the first half of 2014 is running at an annual rate of 1.5 percent, which is well ahead of the growth experienced for the same period in 2013. This pace will remain strong for the second half of 2014 according to our surveys over the past several months,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, rose for the month. The wholesale inflation expanded to 73.5 from May’s 73.1. Inflationary pressures at the wholesale level, while still not in the danger zone, are elevated from the same time last year. “Reports like this from supply managers will encourage the Federal Reserve to continue to reduce its monetary stimulus termed quantitative easing (QE3). Furthermore, elevated inflation data from our surveys, as well as that from other sources, will push the Fed to raise short term interest rates in the first half of 2015,” said Goss.
This month supply managers in the region were asked how much they expect the price of products that they purchase to rise by in the next six months. On average, supply managers anticipate a gain of 2.9 percent for the next six months, or approximately 5.8 percent on an annual basis. On an annual basis, this is an increase of a full percentage point from last month when we asked the same question.
This month businesses in the region were also asked how much they expect the price of health insurance to increase for 2015 over 2014 levels. On average, businesses anticipate an increase of 7.4 percent increase in the cost of health insurance.
Confidence: Looking ahead six months, economic optimism, as captured by the June business confidence index, climbed to 63.6 from 62.5 in May. “Improvements in the national and regional job market supported supply managers’ business outlook for the month,” said Goss.
Inventories: The inventory index, which tracks the level of raw materials and supplies, dipped to a solid 54.0 from May’s 56.0. “While the rate of inventory expansion slowed, it was still positive. This is yet another signal that supply managers are upbeat about the economy, as they also increased inventories in anticipation of expanding sales for their companies in the months ahead,” said Goss.
Trade: The new export orders index soared to 60.2 from 53.0 in May. The import index for June sank to 53.4 from May’s 62.6. “It is a very encouraging signal to track this very healthy exports reading and a seventh straight month of expanding export orders. Exports have been an important source of growth for the region. At the same time, firms in the region continued purchasing from abroad in expectations of upturns in company sales in the weeks and months ahead,” said Goss.
Other components: Other components of the June Business Conditions Index were new orders at 67.2 up from 63.5 in May; production or sales at 66.0, down from 67.1; and delivery lead time for June dropped to 54.4 from last month’s 55.9.
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 July will be released on the first business day of next month, August 1.
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