(NewsDakota.com/NDAgConnection.com) – The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell below growth neutral for a second 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 47.1 from 48.0 in November.
The Mid-America report is produced independently from the national ISM.
“Creighton’s monthly survey of manufacturing supply managers is flashing recession warnings for 2023. Not since April and May of 2020, the middle of the 2020 recession, has the overall index fallen below growth neutral for two straight months,” 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.
“The overall Business Conditions Index has now declined for seven of the past nine months. Approximately 60% of supply managers expect the economy to slump into a recession in 2023,” said Goss.
Employment: Despite solid growth in monthly economic activity over the past several months, manufacturers in the region have added jobs at only a modest pace. Compared to pre-pandemic levels, the regional current labor force remains down approximately 213,000 workers, or 1.5%. The median regional labor force participation rate is currently 67.7% compared to 68.4% in February 2020.
After dropping below growth neutral for October and November, the December employment index climbed to 54.2 from 45.0 in November and 46.3 in October.
“Due to labor shortages, approximately 63% of firms with job openings reported shortages of applicants,” said Goss.
Other December comments from supply managers were:
– “The supply chain was demanding and inventorying more than actual needs.”
– “Eventually excessive price (gouging) will be corrected as well. Classic recession.”
– “Another year done but to be remembered in the annuls of history as the worst ever! Supply chain disruptions, labor shortages, price increases, extended lead-times, poor product quality, ocean freight costs, Coronavirus shutdowns, etc.” Wholesale Prices: The wholesale inflation gauge for the month dropped to 52.1, indicating modest inflation pressure, down from 72.5 in November. This is the lowest inflation reading since May 2020.
“As a result of moderating inflationary pressures, I expect the Federal Reserve to announce a more restrained rate hike of 25 basis points (0.25%) to combat inflation at its next meeting on Jan. 31/Feb. 1,” said Goss.
Confidence: Looking ahead six months, economic optimism as captured by the December Business Confidence Index sank to a very weak 23.0 from 25.0 in November. “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, rose to 52.1 from November’s 45.5. “After months of stockpiling inventories, manufacturing firms have begun returning inventory to normal levels,” said Goss.
According to one supply manager, “Excess demands and excess inventories are now being corrected.”
Trade: Trade numbers were down for December with export orders falling to 43.3 from 50.0 in November. Additionally, firms continue to report weak imports due to a weakening regional economy. The December reading dropped to 36.8 from November’s 39.3.
Other survey components of the December Business Conditions Index were: new orders sank to 37.6 from 47.5 in November; the production, or sales index, slumped to 39.6 from 47.4 in November; and the speed of deliveries of raw materials and supplies slipped to 52.1 from November’s 52.5. This lower reading indicates a reduction in supply chain disruptions with fewer bottlenecks 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.
After three straight months of readings above growth neutral, the North Dakota Business Conditions Index sank below the growth neutral threshold to 45.8 in December from November’s reading of 53.5. Components of the overall index for December were: new orders at 36.5, production or sales at 39.1, delivery lead time at 51.5, employment at 52.3 and inventories at 49.4. According to U.S. Bureau of Labor Statistics data, the state’s current labor force participation rate is 0.9 percentage points lower than its pre-pandemic level. This indicates that currently 3,660 individuals in the state remain out of the workforce, thus contributing to the state’s labor shortage.