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Mid-America Business Conditions Index Ends Year on High Note
Nebraska Ag Connection - 01/03/2018

The December Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Arkansas to North Dakota, rose for the month, pointing to healthy growth for the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 59.0 from November's 57.2. This is the 13th straight month that the index has remained above growth neutral, continuing to point to positive growth for the region over the next three to six months.

"Although the inflation gauge is elevated, I would characterize the region as having a 'goldilocks' economy. That is, not so hot as to push the Federal Reserve to raise interest rates at a stepped up pace, but not so cool as to slow employment gains. Both the national and our regional indices indicate the manufacturing sector is advancing at a very healthy pace and will continue to spill over into the broader national and regional economies in the next three to six 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.

This month supply managers were asked to identify the greatest economic challenge facing their companies' profitability over the next five years. Approximately 44.7 named increasing foreign competition as the biggest threat while more than one in five, or 21.3 percent indicated the shortage of qualified workers would be the greatest challenge to their businesses.

Employment: The December employment index remained above growth neutral with a reading of 57.7, up from 53.6 in November. "The durable, nondurable and nonmanufacturing sectors are adding jobs at a solid pace. Over the past 12 months, the regional manufacturing sector has added approximately 29,000 jobs, a 2.1 percent expansion. This annual regional manufacturing growth rate significantly exceeds the 1.5 percent growth for U.S. manufacturing," said Goss.

Wholesale Prices: For a third straight month, the regional wholesale inflation gauge cooled to a still strong 71.3 from November's 71.4, continuing to indicate elevated regional inflationary pressures at the wholesale level.

"Even though both our regional wholesale inflation index and the U.S. inflation gauge are elevated, I expect the Federal Reserve to forgo a short-term interest rate hike at the next meeting of their rate setting committee on Feb. 1. However, I do expect a .25 percent rate increase at the March 15 meetings," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the December business confidence index, expanded to a very strong 73.2 from 71.9 in November. "Healthy profit growth, still low interest rates, and the recently passed tax reform package pushed business confidence to its highest level since January 2011," reported Goss.

Inventories: The December inventory index indicates that businesses expanded supplies of raw materials and supplies, but at a slower pace than in November. The regional inventory index for December slipped to 54.0 from November's 56.1.

Trade: The regional index for new export orders declined to a still strong 63.9 from November's 65.8, and the import index fell to a solid 53.9 from 59.8 in November. "Expanding regional growth supported purchases of inputs from abroad, while growth among important trading partners underpinned the new export orders at a healthy level," said Goss.

Only 21.8 percent of supply managers expect an abolition of the North American Free Trade Agreement (NAFTA) to negatively affect their company. "Given that states within the region exported $35.4 billion of goods to Canada and Mexico in 2016, supporting approximately 210,000 jobs, it is surprising to measure little concern regarding the abolition of NAFTA," reported Goss.

Other components: Components of the December Business Conditions Index were new orders at 68.0, up from 67.6 in November; the production or sales index decreased to 61.6 from November's 64.8; and delivery speed of raw materials and supplies jumped to 53.7 from last month's 42.6.

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 Nebraska rose to 57.6 from 54.8 in November. Components of the index from the monthly survey of supply managers were new orders at 67.2, production or sales at 59.9, delivery lead time at 52.4, inventories at 52.2, and employment at 56.2. "In 2016, businesses and farms in the state exported $3.5 billion in goods to Canada and Mexico, supporting almost 16,000 jobs in the state. In the nine-state region, Nebraska is the fifth most dependent on NAFTA sales, registering approximately 2.3 percent of GDP," said Goss.

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