Regional indicators show Arkansas economy shrank for 5th straight month

A leading economic indicator for the nine-state middle America region stretching from Arkansas to North Dakota shows that business growth has slumped for the fifth straight month heading into the new year, according to the Creighton University Mid-America Business Conditions Index for December.

The index, which ranges between 0 and 100, sank to 39.6 from November’s 40.7. The monthly survey shows that the entire region is now in negative territory because of manufacturing losses linked to the strong U.S. dollar and to economic weakness among global trading partners, said Creighton University economist Ernie Goss.

“The U.S. dollar strengthened by almost 10 percent in 2015. This along with economic weakness among the nation’s chief trading partners has squeezed, and will continue to squeeze, U.S. and regional manufacturers,” said Goss, director of Creighton’s Economic Forecasting Group and the chair of the university’s Regional Economics in the Heider College of Business.

The national (Purchasing Managers’ Index) PMI report released Monday (Jan. 4) by the Institute Supply Management shows that economic activity in the manufacturing sector contracted in December for the second consecutive month. Goss said the weaknesses in the national economy are slowly affect different regions of the country.

“While this weakness has yet, to any large degree, spill over into the broader economy in most states in the region, I expect to see this in the first quarter of 2016,” he said.

ARKANSAS SUPPLY MANAGERS EXPRESS CONCERN
Like the regional economy, Arkansas’ December overall index fell below neutral for the fifth straight month. The state’s reading for December sank to 40.1 from November’s 42.1. Components of the index from the monthly survey of supply managers were new orders at 35.1, production or sales at 35.8, delivery lead time at 47.9, inventories at 44.1, and employment at 37.6.

Goss said Arkansas construction sector was largely responsible for much of the state’s growth in 2015, but durable goods manufacturing lagged well behind other sectors throughout the year. Going forward, he said strong buying by anxious consumers would help lift the state’s economy in 2016, but added that multiple fed rate hikes and higher fuel prices are the greatest risk to growth in the first half of the year.

Overall, the regional nine-state employment gauge plummeted for December thanks to job losses for the manufacturing and value added services sectors including warehousing. The job gauge declined to 37.1 from 41.7 in November.

“Over the past year, the region has lost approximately 18,000, or 1.3 percent, of its manufacturing jobs. This represents about half of all U.S. manufacturing job losses over the year. Areas and industries heavily dependent on manufacturing, especially those linked to exports, agriculture and energy, are experiencing the largest losses,” said Goss.

This month supply managers were asked to forecast 2016 wage gains for their businesses. On average, wages and salaries are expected to expand by 2.2%, or slightly above anticipated inflation.

The wholesale inflation index for December rose to 48.2 from November’s 42.6.

“Even though our survey indicates recent deflation at the wholesale level, supply managers expect prices of goods and services they purchase to rise at an annual pace of 3.5 for the first half of 2016,” said Goss.

Looking ahead six months, economic optimism, as captured by the December business confidence index, advanced to a tepid 49.1 from 41.2 in November.  Goss said falling agriculture and energy commodity prices, along with global economic uncertainty, continues to restrain supply managers’ expectations of future economic conditions.

In another sign of a sinking economic outlook, supply managers reduced their inventory levels for the month, though at a slower pace. The December inventory index, which tracks the change in the level of raw materials and supplies, increased to 43.6 from 39.2 in November.

The new export orders index dropped for the month to a feeble 33.8 from 39.5 in November. The import index for December stood at 40, up from November’s 37.

“The strong U.S. dollar, making U.S. goods less competitively priced abroad, and a weaker global economy, slammed new export orders for the month,” Goss said. “On the other hand, negative regional manufacturing growth pushed the import index below growth neutral for the month.”

Other components of the December Business Conditions Index were new orders at 34.6, down from 34.2 in November; production or sales moved slightly lower to 35.4 from November’s 36.2; and delivery speed of raw materials and supplies sank to 47.3 from last month’s 52.4.

NATIONAL ECONOMY STILL GROWING
Nationally, despite the weaknesses in the manufacturing sector, the U.S. economy grew for the 79th consecutive month, according to the survey of the nation’s supply executives in the latest ISM report. The December PMI registered 48.2%, a decrease of 0.4 percentage point from the November reading of 48.6%.

The new orders index registered 49.2%, an increase of 0.3 percentage point from the reading of 48.95 in November. The production Index registered 49.8%, 0.6 percentage point higher than the November reading of 49.2%.

On the negative side, the Employment Index registered 48.1%, 3.2 percentage points below the November reading of 51.3%. The Prices Index registered 33.5%, a decrease of 2 percentage points from the November reading of 35.5%, indicating lower raw materials prices for the 14th consecutive month.

“As was the case in November, 10 out of 18 manufacturing industries reported contraction in December,” said Bradley Holcomb, chair of the ISM business survey committee. “Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December.”