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Mid-America Index Falls, Wholesale Inflation Cools to 2-Year Low
South Dakota Ag Connection - 10/04/2022

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell again in September but remained above growth neutral for the 28th 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, dropped to 52.7 in September from August's 55.5. This marks the index's lowest reading since June 2020, and the fifth decline in the past six months.

The Mid-America report is produced independently from the national ISM.

As stated by one supply manager, "Just seems like things are slowing down. Not drastically, but still slowing down."

"Creighton's monthly survey results indicate the region continues to add manufacturing activity, but at a slower pace with declining inflationary pressures. Supply chain disruptions eased further in September, 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.

Employment: Despite healthy growth in monthly economic activity for almost two years, manufacturers in the region have added jobs at only a modest pace. The employment index remained above growth neutral in September, increasing only slightly to a tepid 51.9 from August's 51.8.

Other September comments from supply managers were:

"(Our) company's products are not tied to the holiday business rush. The 15% increase noted above is based on order backlog and schedule work activities from last year."

"I assume there will be a pullback over the next quarter and beyond. The labor and inflation pressures are compounding and not linear."

"Consumer spending has moved away from mattresses and furniture."

"I assume all utilities demand material and services from the same specialty suppliers nationwide."

"Our company is shut down from Dec. 23 to Jan. 2."

"Higher (interest) rates are going to slow things down. Not sure that is going to help the unemployment situation any!"

Wholesale Prices: The wholesale inflation gauge for the month softened to its lowest reading since August 2020. The inflation reading fell to 71.2 for September from 76.0 in August. "As oil prices have stabilized at a lower level, so has inflation. Even so, I expect the Federal Reserve to announce an interest rate hike of 50 basis points (0.50%) to combat inflation at its Nov. 1-2 meetings," said Goss.

Supply chain managers were asked to identify the greatest challenge for Quarter 4 of 2022. Approximately 43.0% named supply chain disruptions as the greatest challenge. This is down from 58.6% recorded last month.

One supply manager reported that as a result of these disruptions, "Supply chain issues continue to adversely affect us."

In addition to the challenge of supply chain disruptions, managers identified other top risks: 35.6% named labor shortages (up from 24.1% recorded in August), 10.7% reported higher inflation (10.4% in August), 3.6% identified elevated interest rates (6.9% in August) and 7.1% reported a global recession (less than 1% in August).

According to the U.S. Bureau of Labor Statistics, commodity prices are up approximately 15.3% over the last 12 months with farm products advancing by 22.3%, metal products expanding by 3.4% and fuels soaring by 37.3% during this same time period.

Confidence: Looking ahead six months, economic optimism as captured by the September Business Confidence Index slumped to a very weak 25.9 from 32.2 in August. "Confidence indices for each month in 2022, all below growth neutral, are the worst string of readings since the 2008-09 recession," said Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, increased to 65.5 from August's 57.4. "Manufacturing firms are stockpiling inventories to avoid threats of supply chain disruptions," said Goss.

Trade: Supply chain bottlenecks and a very strong dollar punished exports as the September reading again fell below growth neutral but increased to 44.5 from 43.8 in August. On the other hand, the stronger dollar and regional manufacturing expansion pushed the imports index above growth neutral to 50.1, but it was down from August's 52.6.

Other survey components of the September Business Conditions Index: new orders slumped to 46.2 from 48.0 in August; the production or sales index sank to 46.2 from 56.0 in August; and the speed of deliveries of raw materials and supplies declined to 53.9 from August's 64.4. This lower reading indicates a reduction in supply chain disruptions and fewer delays for the month. September's reading was the lowest recorded since June 2020.

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 September Business Conditions Index for South Dakota decreased to 53.3 from 60.5 in August. Components of the overall index from the September survey of supply managers in the state were: new orders at 46.0, production or sales at 46.4, delivery lead time at 54.3, inventories at 66.3 and employment at 63.4. "Durable goods and non-durable goods are reporting slower growth in economic activity and jobs. On the other hand, BLS data indicate that manufacturing wages grew from $23.77 to $26.07, or by a strong 9.7%, over the past 12 months," said Goss.

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