South Dakota Ag Connection - Mid-America Index Falls, But Remains in Growth Range

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Mid-America Index Falls, But Remains in Growth Range
South Dakota Ag Connection - 07/05/2022

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rose above growth neutral for the 25th 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, sank to a still-solid 58.6 from May's 60.0. The Mid-America report is produced independently from the national ISM.

"Creighton's monthly survey results indicate the region continues to add manufacturing activity at a solid pace but is pointing to slower growth with significant inflationary pressures ahead. Supply chain disruptions did ease in June, 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.

Even with solid economic activity, supply managers were very pessimistic about the economy. As reported by one supply manager, "Predict: Economy to continue to slow significantly. Inflation will continue for at least the next several months."

Employment: Despite healthy growth in monthly economic activity for almost two years, manufacturers in the region have added jobs at only a modest pace. That said, the employment index rose above growth neutral for the fifth straight month to 59.7 from 53.4 in May. Except for Arkansas and South Dakota, non-farm employment levels (seasonally adjusted) remain below pre-pandemic levels for all states in the region.

"Over the last 12 months, according to U.S. Bureau of Labor Statistics data, manufacturers in the region have boosted the average hourly work week by a median of only 0.2%, and increased average hourly earnings by a healthy 5.8%," said Goss.

Other June comments from supply managers were:

- "Energy supply must improve to avert a deep recession."

- "Consumers have shifted their buying from durable goods to service-related industries such as air travel, hotel and restaurants."

- "A lot of damage has happened already and there are still four months to the point of no return. All for the sake of greed!"

- "Business seems to be slowing a bit and the outlook is not much better for the next six months. Supply chain delays have really (hurt) business and productivity."

Wholesale Prices: The wholesale inflation gauge for the month declined to a still-high 88.0 from May's 91.7. "Creighton's monthly survey continues to track the highest and most consistent inflationary pressures at the wholesale level in more than a quarter of a century of conducting the survey," said Goss.

According to the U.S. Bureau of Labor Statistics, commodity prices are up approximately 21.5% over the last 12 months with farm products advancing by 25.1%, metal products expanding by 21.7%, and fuels soaring by 55.6% during this same time period.

"Given current significant inflationary pressures, I expect a rate hike of 0.75% at the Federal Reserve's interest rate setting committee (FOMC) meeting July 26-27, despite the current economic slowdown and the rising probability of a recession," said Goss.

Confidence: Looking ahead six months, economic optimism as captured by the June Business Confidence Index, plummeted to a very weak 17.3 from 21.7 in May. "This is the lowest confidence index that we have recorded since the beginning of the pandemic. When asked about their economic outlook, only 3.8% of supply managers expect the U.S. economy to expand in the next six months," said Goss.

On average, supply managers assessed the likelihood of a recession in the next 12 months at 68.9%, with one of five supply managers putting the probability of a recession above 90%.

By contrast, 57.7% of supply mangers expect business activity for their own firms to expand over the next six months with only one of five anticipating a decline in business activity for their firm over that same six months.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, rose to 60.0 from May's 53.7.

Trade: Despite supply chain bottlenecks, regional trade numbers were positive for the month. The new export orders index slipped to a healthy 62.5 from May's 63.4, while the regional import reading rose to 50.1 from 47.5 in May.

Other survey components of the June Business Conditions Index: new orders sank to 46.0 from 59.3 in May; the production or sales index fell to 54.2 from 57.2 in May; and the speed of deliveries of raw materials and supplies declined to 73.1 from May's 76.7. This lower reading indicates a reduction in supply chain disruptions and delays for the month.

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 June Business Conditions Index for South Dakota climbed to 67.9 from 57.9 in May. Components of the overall index from the June survey of supply managers in the state were: new orders at 47.0, production or sales at 57.5, delivery lead time at 76.1, inventories at 78.9 and employment at 80.1. "Over the last 12 months, according to U.S. Bureau of Labor Statistics data, manufacturers in the state have reduced the average hourly work week by 2.7% (eighth in region) and increased average hourly earnings by 9.0% (second in the region)," said Goss.

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