Iowa Ag Connection - December Mid-America Business Conditions Soars

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December Mid-America Business Conditions Soars
Iowa Ag Connection - 01/13/2017

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for a nine-state region stretching from Arkansas to North Dakota, rose for December, according the December survey results.

Overall index: The Business Conditions Index, which ranges between 0 and 100, rose in December to its highest level since February 2015. After five straight months of readings below growth neutral, the overall index rocketed to 53.1 from November's much weaker 46.5.

"This is the second straight increase in the overall index and points to an improving regional manufacturing economy. I expect this to generate even healthier growth for both manufacturing and nonmanufacturing for the first half of 2017," 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: After six consecutive months of below growth neutral readings, the regional employment gauge for December rose to its highest level since May 2016. The job gauge for December climbed to 50.9 from November's 41.9. "The growth gap between regional manufacturing and nonmanufacturing appears to be closing. The key for regional manufacturing will be any changes in sales abroad driven by the value of the U.S. dollar and global economic improvements," said Goss.

Wholesale Prices: The wholesale inflation gauge remained in a range indicating modest inflationary pressures at the wholesale level, as the prices-paid index jumped to 70.4 from November's 57.5.

"This is the highest wholesale inflation gauge that we have recorded in 29 months. As oil prices have risen, so has our inflation gauge. The interest-rate setting committee of the Federal Reserve, the FOMC, expects to raise interest rates three times in 2017," said Goss. "The Bureau of Labor Statistics' releases its consumer price index on January 18. If the overall reading moves above annualized inflation above 2 percent, the FOMC could increase short-term interest rates as early as at its January 27 meeting," reported Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, rose to 63.3 from 61.6 in November.

Inventories: In another show of growing confidence, supply managers added to inventories for December. The December inventory index, which tracks the change in the level of raw materials and supplies, advanced to 52.8 from November's 42.8.

Trade: The much stronger U.S. dollar failed to restrain new export orders index as the index expanded to 54.0 from 45.7 in November, and the import index increased to 53.7 from November's 46.4. "Both selling and buying from abroad remain important to firms that we survey. Almost one-third, or 30 percent, indicated that buying raw materials and supplies from abroad was either essential or very important. Trade restraints, if implemented, would slow regional growth," said Goss.

Other components: Components of the December Business Conditions Index were new orders at 53.6, up from 46.4 in November; production or sales index was 50.0, up from November's 48.2; and delivery speed of raw materials and supplies rose to 58.4 from last month's 53.6.

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 since 1931 by the Institute for Supply Management, formerly the National Association of Purchasing Management.

The December Business Conditions Index for Iowa climbed to 51.7 from November's 48.3. Components of the overall index from the monthly survey of supply managers were new orders at 52.5, production or sales at 48.9, delivery lead time at 55.9, employment at 50.0, and inventories at 51.0. "Iowa's economy will continue to expand for 2017 with overall job gains of 5,000 for the first half of the year for a 0.6 percent annualized increase, or slightly less than the long term average," said Goss. Top of state's 2017 economic wish list: 15 percent increase in grain prices; Chief 2017 economic risk: Stronger U.S. dollar, and U.S. trade restrictions and trade conflicts.

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