North Dakota Ag Connection - First Time Since April, Mid-America Index Drops: Outlook Plummets

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First Time Since April, Mid-America Index Drops: Outlook Plummets
North Dakota Ag Connection - 12/02/2020

For the first time since April, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell, but remained above growth neutral for the month.

Overall index: In April, COVID-19 pushed the overall index to its lowest level in 11 years. Since April, the overall index has climbed above growth neutral 50.0 for six of the past seven months. The November Business Conditions Index, which ranges between 0 and 100, dipped to 69.0 from October's 70.2.

"Creighton's monthly survey results have mirrored the national manufacturing survey results indicating that the manufacturing sector has been expanding at a solid pace since sinking to a post-2008 recession low in April. Even so, current output in the regional and U.S. manufacturing sectors remains below pre-COVID-19 levels," 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: The regional employment index remained well above growth neutral for November, but fell to 63.1 from 66.7 in October. Since the onset of COVID-19, U.S. Bureau of Labor Statistics data indicate that regional nonfarm employment is down 649,000 jobs, or 4.7%, and regional manufacturing employment is off by 72,000 jobs or 4.9%.

Since bottoming out in April, regional manufacturing has gained back roughly 37,000, or 2.7%, of the initial nonfarm job losses.

Approximately 52.9% of manufacturers from the November Creighton survey indicated that they hired back all COVID-19 furloughed workers, while 29.4% reported that their firms had rehired a portion of the furloughed workers. The remaining 17.7% stated that their firm had never furloughed workers. Approximately 5.9% expect to furlough additional workers.

Other comments from November survey participants:

- "(My firm) cannot find workers no one want to do physical labor unemployment is too low."

- "Employment is up and I can't find enough qualified workers. Our smaller suppliers really need a second stimulus package from the government or the prices we pay our suppliers will have to go up."

- "No employees furloughed."

- "Taxes, costs, prices, debt will all go up while GDP, consumer confidence, etc will go down. Brace yourself."

- "We did not furlough any employees during the COVID-19 pandemic. We have hired new employees because of increased sales volume and backlog of new sales for the first quarter. These are the first employees we have hired in more than a year."

Wholesale Prices: The wholesale inflation gauge for the month rose to 84.8, its highest level since June 2018, up from 76.8 in October.

Said one supply manager, "Corrugated shippers are experiencing tight supply. Prices are up substantially with E-commerce and retail packaging growth."

"Though inflationary pressures have risen significantly over the last several months, the Federal Reserve remains comfortable with current ultra-low short-term interest rates. In recent meetings of the rate setting committee, the FOMC, they indicated they will likely keep short-term interest rates at near record lows well into the future even as inflation ticks up above their target," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the November Business Confidence Index, plummeted to 50.0 from October's very strong 70.4.

"A sharp upturn in COVID-19 infections, along with more economic lockdowns, weighted on November's economic outlook," said Goss.

Inventories: The regional inventory index for November, reflecting levels of raw materials and supplies, slumped to a still solid 59.2 from last month's 66.8.

Trade: The regional trade numbers were up sharply for the month, with new export orders rising to 75.0, from October's 58.4. An expanding domestic manufacturing sector supported a solid import index at 67.9, up steeply from 59.5 in October.

Other survey components of the November Business Conditions Index were: new orders at 77.3, were up slightly from 76.2 in October; the production or sales index expanded to 78.3 from 73.3 in October; and the speed of deliveries of raw materials and supplies index at 67.4, down from last month's 68.4.

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 (ISM), formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

The November Business Conditions Index for North Dakota slumped to 57.2 from 59.0 in October. Components of the overall index for November were: new orders at 73.2, production or sales at 73.3, delivery lead time at 50.5, employment at 50.4, and inventories at 38.9. "Recent surveys indicate that durable goods manufacturers and nondurable goods producers continue to experience slow to no growth," said Goss.

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