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Survey: Economy Grows, But Inflation, Shipping Worries Loom

Survey: Economy Grows, But Inflation, Shipping Worries Loom

For a ninth straight month, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, moved into growth territory.

The Business Conditions Index, which ranges between 0 and 100, climbed to a very strong 69.6 from 67.3 in January. Creighton’s regional manufacturing activity gauge is surging, restrained only by supply and labor constraints. From the February survey, eight of 10 manufacturing supply managers reported that bottlenecks in receiving raw materials and supplies from vendors was curtailing what would be even stronger growth.

“Since bottoming out in April, the region has regained almost one-half of the manufacturing jobs lost to COVID-19. Even so, the regional manufacturing level is currently down by approximately 50,000 jobs, or 3.5%. Creighton’s monthly survey results indicate that the region is adding jobs and economic activity at a healthy pace, and that growth will remain healthy for the first half of 2021,” 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.

For Nebraska, Goss said the state’s overall index for February rose to 70.8 from 69.2 in January.  Components of the index from the monthly survey of supply managers for February were: new orders at 80.2, production or sales at 76.5, delivery lead time at 74.3, inventories at 57.2, and employment at 65.9. “Since July of last year, both durable and nondurable goods manufacturers in the state have expanded at a slow pace. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in Nebraska have expanded by 1.7% since the onset of COVID-19,” said Goss.

Employment: The regional employment index remained well above growth neutral for February, rising from 57.2 in January to 65.6 in February.

Other comments from February survey participants:
•    “We are in the shipping business and the demand for services both domestically and internationally is very strong.”
•    “The impacts of the Biden Executive Orders have yet to take effect but will start to show as the market wains and consumer confidence shrivels.”
•    “My comments are for my plants in Minnesota, South Dakota, North Carolina, Texas, Monterrey, Mexico, Juarez, Mexico and Brampton, Canada. In regard to the bottleneck question, I would rate all 5 items a #1, or very important.”
•    “Supply bottlenecks are caused by raw material (steel) availability and price, international shipping container availability. Weather caused factory shutdowns (no longer Covid).”

Wholesale Prices: The wholesale inflation gauge for the month soared to 95.2, a record high for the region and up from January’s 10-year high of 91.1.

As reported by a supply manager, “I purchase a lot of steel components and the increases are ridiculous. Steel availability is tight. I see hyperinflation coming.”

“At the wholesale level, Creighton’s survey is tracking higher and higher inflationary pressures.  Metal products and lumber, for example, are experiencing significant upward pressures in prices.  Over the last six months metal prices have expanded by 11% and lumber products have advanced by 16% according to U.S. Bureau of Labor Statistics data. Despite rapidly expanding inflationary pressures at the wholesale level, the Federal Reserve remains committed to its current expansionary policy,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February Business Confidence Index, dropped to 50.0 from January’s 53.6.

“Supply bottlenecks and rapidly rising prices pushed economic confidence among manufacturing supply managers lower for the month,” said Goss.

Inventories: The regional inventory index for February, reflecting levels of raw materials and supplies, slipped to 53.4 from last month’s 55.4.

Said one supply manager in our January survey, “Order fulfillment times have extended from 8-10 weeks to 20-22 weeks and longer.”

In addition to issues related to California port delays in obtaining supplies and raw materials, supply managers detailed significant delays. One-third identified shipping and transportation delays as the top factor accounting for delays. Approximately 23% indicated that supplier cutbacks and shutdowns were the prime factor slowing deliveries, and 18% reported that supplier’s capacity constraints were the major factor slowing deliveries.

Trade: The regional trade numbers strengthened significantly for the month with new export orders soaring to 70.5 from January’s 62.5. An expanding domestic manufacturing sector supported an import reading of 52.3, but was down from 63.2 in December.

“The trade-weighted value of the U.S. dollar has declined by approximately 5.2% between August of last year and today. “The cheaper U.S. dollar has made U.S. goods more competitively priced abroad. However, I expect higher U.S. interest rates to strengthen the value of the U.S. dollar slightly in the months ahead. Even so, the outlook looks positive for the export of U.S. goods and commodities for the first half of 2021,” said Goss.

Other survey components of the February Business Conditions Index were: new orders advanced to 79.0 from 76.9 in January; the production or sales index fell to a still strong 76.6 from January’s 80.4; and the index for the speed of deliveries of raw materials and supplies climbed to 73.5, indicating rising supply delays, from last month’s 69.7.

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.

Arkansas: The February Business Conditions Index for Arkansas increased to 79.8 from January’s 76.9. Components from the February survey of supply managers were: new orders at 81.4, production or sales at 79.2, delivery lead time at 83.0, inventories at 81.1, and employment at 81.1. “Since July of last year, both durable and nondurable goods manufacturers in the state have expanded at a healthy pace. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in Arkansas have expanded by 4.6% since the onset of COVID-19,” said Goss.

Iowa: Iowa’s Business Conditions Index for February dipped to 71.1 from 71.5 in January. Components of the overall February index were: new orders at 80.2, production, or sales, at 68.9, delivery lead time at 78.4, employment at 68.8, and inventories at 68.4. “Since July of last year, both durable and nondurable goods manufacturers in Iowa have expanded at a healthy pace. However, according to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in the state have been flat since the onset of COVID-19,” said Goss.

Kansas: The Kansas Business Conditions Index for February slipped to 61.6 from 62.0 in January. Components of the leading economic indicator from the monthly survey of supply managers were: new orders at 68.7, production or sales at 74.2, delivery lead time at 67.0, employment at 60.8, and inventories at 37.4. “Since July of last year, both durable and nondurable goods manufacturers in the state have expanded at a slow pace.  According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in the state have expanded by weak 0.6% since the onset of COVID-19,” said Goss.

Minnesota: The February Business Conditions Index for Minnesota climbed to 68.8 from 66.9 in January. Components of the overall February index were: new orders at 78.7, production or sales at 76.1, delivery lead time at 72.9, inventories at 51.5, and employment at 64.9. “Since July of last year, nondurable goods manufacturers in the state have expanded at a healthy pace while durable goods producers have advanced at a slow pace. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in the state have expanded by 2.6% since the onset of COVID-19,” said Goss.

Missouri: The February Business Conditions Index for Missouri rose to 64.2 from 62.5 in January.  Components of the overall index from the survey of supply managers for February were: new orders at 77.3, production or sales at 76.4, delivery lead time at 67.5, inventories at 38.8, and employment at 61.1. “Since July of last year, both durable and nondurable goods manufacturers in the state have expanded at an anemic pace. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in Missouri have expanded by a strong 6.1% since the onset of COVID-19,” said Goss.

North Dakota: The February Business Conditions Index for North Dakota increased to 76.0 from 75.6 in January. Components of the overall index for February were: new orders at 80.5, production or sales at 78.2, delivery lead time at 79.7, employment at 69.7, and inventories at 71.9. “Since July of last year, both durable and nondurable goods manufacturers in the state have experienced only slight growth. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in North Dakota have expanded by 2.9% since the onset of COVID-19,” said Goss.

Oklahoma: Oklahoma’s Business Conditions Index expanded above growth neutral in February. The overall index climbed to 67.1 from 65.4 in January. Components of the overall February index were: new orders at 78.1, production or sales at 75.3, delivery lead time at 70.5, inventories at 48.7, and employment at 63.2. “Since July of last year, nondurable goods manufacturers in the state have advanced at a slow pace while durable goods producers experienced only slight growth. However according to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in the state have expanded by a very strong 12.9% since the onset of COVID-19,” said Goss.

South Dakota: The February Business Conditions Index for South Dakota climbed to 64.0 from 62.2 in January. Components of the overall index from the January survey of supply managers in the state were: new orders at 77.2, production or sales at 74.3, delivery lead time at 67.2, inventories at 38.0, and employment at 63.4. “Since July of last year, both durable and nondurable goods manufacturers in South Dakota have expanded at a slow pace. According to U.S. Bureau of Labor Statistics data, manufacturing wages for production workers in the state have expanded by 0.1% since the onset of COVID-19,” said Goss.

Survey results for March will be released on April 1, 2021, the first business day of the month.

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