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Mid-America Business Conditions Weaken Again
USAgNet - 10/05/2016

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for a nine-state region stretching from Arkansas to North Dakota, slumped for September.

Overall index: The September Business Conditions Index, which ranges between 0 and 100, fell to 45.5 from August's 47.8 and July's 47.6. This is the third straight month the index has moved below growth neutral 50.0. Like the national survey of supply managers, our regional survey is indicating that the manufacturing sector is experiencing negative growth.

"Weakness among manufacturers linked to agriculture and energy continue to weigh on regional economic conditions. Due to the heavy dependence of the region on these two sectors, I will expect to see the regional economy to continue to underperform the national economy. Over the past 12 months, for example, the region has experienced nonfarm job growth of 1.1 percent compared to 1.7 percent for the U.S. This gap is likely to continue for the remainder of 2016," 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: The regional employment gauge indicates the manufacturing sector in the nine-state region continues to lose jobs as the index, which rose slightly, remained below growth neutral for the fourth straight month. The job gauge rose to a weak 46.8 from 44.0 in August.

"The growth gap between regional manufacturing and nonmanufacturing continues to expand. Over the last 12 months, U.S. Bureau of Labor Statistics data indicate the region's manufacturing sector lost almost 20,000 jobs while regional nonmanufacturing added almost 109,000 jobs. That is, over the past 12 months, regional manufacturing employment declined by 1.4 percent, but regional nonmanufacturing employment expanded by 1.1 percent," said Goss.

Wholesale Prices: The wholesale inflation gauge remained in a range indicating modest inflationary pressures at the wholesale level, though the prices-paid index expanded to 59.7 from August's 56.5. On average, supply managers expect the prices for supplies and raw materials they purchase to expand by 2.1 percent over the next six months.

"Even though wholesale price inflation remains in a range indicating only modest upward price pressures, I expect the Federal Reserve to raise rates at least once before the end of the year. The core consumer price index, which excludes food and energy, has risen above 2 percent for 10 straight months," said Goss.

The Creighton September survey asked how supply managers expected a Federal Reserve rate hike to impact their firm's profitability. More than one in five, or 23.0 percent, expect such a rate increase to have a negative effect on their firm's revenue and profitability. On the other hand, five percent reported such an interest rate change would have a positive impact, with the remaining 72.0 percent expecting little or no impact.

Confidence: Looking ahead six months, economic optimism, as captured by the September business confidence index, increased to a frail 48.5 from August's 45.4. "Global economic uncertainty and weakness in the region's agricultural and energy sector are weighing on the business economic outlook of supply managers," said Goss.

Inventories: The September inventory index, which tracks the change in the level of raw materials and supplies, plummeted to 40.1 from August's 52.3. "The bankruptcy of Hanjin Shipping was reported by supply managers as a factor restraining imports and inventory replenishment," said Goss.

Trade: The new export orders index plunged to 33.8 from 50.1 in August while the import index fell to 43.4 from 45.8 in August. "Supply managers reported the Hanjin Shipping bankruptcy reduced both exports and imports for the month. Global economic weakness added to September trade difficulties," said Goss.

Other components: Components of the September Business Conditions Index were new orders at 41.9, down from 44.4 in August; production or sales index was 45.7, up slightly from 45.2 in August; and delivery speed of raw materials and supplies rose to 53.1 from last month's 52.9.

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.

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