Regional Economic Indicator Forecasts Slow 3Q Growth, Despite Expanding Labor Pool

The Arkansas labor pool continues to expand as business activity picks up this summer, but flat to declining weekly wages are stifling economic growth across the state and region heading into the third quarter, according to The Creighton University Mid-America Business Conditions Index for July released Monday (Aug. 3).

Ernie Goss, director of Creighton University’s Economic Forecasting Group, said business conditions across the nine-state regional economy that includes Arkansas slumped in July and key indices over the past several months have pointed to slow to no economic growth over the next three to six months.

“Durable and nondurable goods manufacturers, as well as value-added service industries in the region, are experiencing very little growth,” said the highly-watched Creighton University economist. “Businesses tied to agriculture and energy continue to report pullbacks in economic activity and this is spilling over into the broader regional economy.”

The monthly index developed by Creighton University is a leading economic indicator for a nine-state region stretching from North Dakota to Arkansas. The July Business Conditions Index, which ranges between 0 and 100, declined to 50.6 from June’s 53. The regional index, much like the national reading, is pointing to weak growth through the third quarter of 2015.

The July overall index, or leading economic indicator for Arkansas, climbed to 52.4 from June’s 50.4. Components of the index from the monthly survey of supply managers were new orders at 50.0, production or sales at 49.1, delivery lead time at 54.3, inventories at 57.0, and employment at 51.7. According to the Creighton University economist, U.S. Bureau of Labor Statistics data for Arkansas show a 2.6 percent decline in average weekly wages, but a 2.0 percent gain in jobs.

“Despite the increase in the overall index for July, I expect job gains to continue to fall, but remain slightly positive in the months ahead. Durable and nondurable producers in Arkansas report soft, but positive growth in business activity for the month,” said Goss.

Overall, the regional employment gauge improved for the month but remains at a level pointing to slow to no new hiring in the months ahead. The job gauge advanced to a weak 50 from June’s 49.1. “Industries and areas dependent on agriculture and energy are experiencing cuts. For example, metal producers and agricultural equipment manufacturers are facing job losses,” said Goss.

In terms of wage growth, recently released government data show flat average weekly wages for the first half of 2015 compared to the same period in 2014 for the region. Gains in average weekly wages for Iowa, Kansas, Nebraska, and South Dakota were offset by losses for Arkansas, Minnesota, Missouri, North Dakota and Oklahoma.

This month, Goss said supply managers were asked how a September 2015 Federal Reserve rate hike would affect their firm. “More than one-fourth, or 26%, expect negative impacts from a rate increase, 5% anticipate positive effects, while the remaining 69% expect little or no affects from an interest rate hike in September,” he said.

Looking ahead six months, economic optimism, as captured by the July business confidence index, plummeted to 52.4 from June’s 59.9. “Sinking agriculture and energy commodity prices pushed supply managers’ expectations of future economic conditions lower for the month,” Goss said.

The Creighton University 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 by the National Institute for Supply Management, formerly the Purchasing Management Association, since 1931.