Regional Outlook Shows Steady Growth in State’s Manufacturing Sector, Wages Still Lag

Arkansas’ “blue collar” economy grew slightly in the month of February with strong improvements in new orders, production and employment levels, according to a monthly economic indicator for the nine-state Midwest region.

However, the Creighton University Mid-America Business Conditions Index for February still shows that some areas of the state’s manufacturing sector are feeling the post-recession blues, particularly those industries that produce durable goods. Arkansas worker wages are also still lagging well behind the rest of the nation, said Ernie Goss, director of Creighton University’s economic forecasting group.

Overall, the regional economic index for the nine-state region stretching from North Dakota to Arkansas rose to 57.0 from January’s 54.8. Goss said there are signs pointing to positive economic gains over the next three to six months for the region.

In Arkansas, the February index rose to 52.7 from January’s 52.5. Components of the index from the monthly survey of supply managers were new orders at 48.0, production or sales at 52.4, delivery lead time at 54.9, inventories at 56.6, and employment at 51.9.

“Durable goods manufacturers in the state are growing at a solid pace. However, even with this recent healthy growth, compared to pre-recession levels, this heavy manufacturing sector has lost more than 18,000 jobs,” Goss said, adding that average weekly wages for all Arkansas workers have declined by 1.5 percent over the past year.

Nationwide, the most recent monthly jobs report from the Labor Department’s Bureau of Labor Statistics (BLS) shows average U.S. hourly earnings increased by 12 cents to $24.75, up 2.2% compared to a year ago. Yet, average hourly wages for Arkansas workers is $17.95, up only 0.7% from same period in 2014, BLS statistics show.

The Creighton University forecasting group’s overall 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 regional index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time, using the same methodology used by the National Institute for Supply Management that produces the monthly index of U.S. manufacturing activity.

Here’s a snapshot of manufacturing activity for regional economy that includes Arkansas, Minnesota, Iowa, North and South Dakota, Nebraska, Missouri, Kansas and Oklahoma.

Employment
The regional employment gauge remained in a range indicating positive but slow growth for manufacturing and value-added services firms in the region. The job gauge fell to 50.8 from January’s 51.4.

“While the job index stood above growth neutral for February, this was the second straight month that the reading has fallen. Businesses linked to agriculture and energy are laying off workers as firms outside these two sectors are expanding hiring at a positive pace,” said Goss. More than one-third of supply managers, or 35.2 percent, expected new hiring for their firms in 2015, he said.

Wholesale Prices
The wholesale “price-paid” index for February sank to 51.5 from January’s 54.9. “A strengthening U.S. dollar and significantly lower fuel prices have pushed inflationary pressures at the wholesale level lower over the past several months,” said Goss.

Supply managers reported they expect the 2015 prices for their company’s products and services to grow by 1.6 percent, he said. This is down significantly from 2.6 percent recorded at this time in 2014.

Confidence
Looking ahead six months, economic optimism, as captured by the February business confidence index, decreased to 58.4 from January’s 61.8. “Improving economic expectations resulting from lower energy prices more than offset economic pessimism stemming from weakness among energy and energy-linked businesses,” said the Creighton University economist.

Inventories
The inventory index, which tracks the change in the level of raw materials and supplies, jumped to 56.6 from 50.0 in January.

This month, supply managers were asked about the impact of the West Coast port dispute on their firm. Nearly 44.9 percent reported the port bottlenecks had a negative impact on their ability to purchase inputs of raw materials and supplies, Goss said. The remaining 55.1 percent registered little or no impact from the shipping difficulties.

Trade
The new export orders index sank to 54.4 from 57.0 in January. The import index for February slipped to 52.7 from January’s 52.8. “Over the past six months, the value of the U.S. dollar has risen dramatically against the currencies of our chief trading partners. This movement has made US goods less competitively priced abroad and foreign goods more cheaply priced in the US. Despite this, the new export orders index was at a solid level for February. I do expect exports and new export orders to move lower in the months ahead,” said Goss.

Other components
Other components of the February Business Conditions Index were new orders at 57.1, down from 58.6 in January; production or sales expanded to 63.8 from January’s 60.5; and delivery speed of raw materials and supplies jumped to 56.7 from last month’s 53.4.