Creighton Index: Arkansas economy moves above ‘growth neutral’ level

Although Arkansas’ manufacturing sector lost thousands of jobs since the Great Recession, productivity among the state’s factory workers is still the highest in the nine-state region that makes up the Mid-America economy, according to a highly-watched Creighton University Mid-America Business Conditions index released on Monday (April 4).

That output from the state’s blue collar labor pool has also pushed business activity in Arkansas above “growth neutral” in 2016 as more manufacturers take advantage of innovation and automation to increase productivity with fewer workers on payroll, data from the regional economic indicator shows.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota since 1994 to produce leading economic indicators of the Mid-America economy. A reading above 50 indicates the manufacturing economy is expanding; below 50 indicates it is contracting.

In March, Arkansas improved to a to 51 from February’s lagging 46.1. Components of the index from the monthly survey of supply managers were new orders at 54.0, production or sales at 51.1, delivery lead time at 51.8, inventories at 51.4, and employment at 46.6.

“Since the beginning of the recovery in 2009, Arkansas’ manufacturing sector has lost almost 9,000 jobs while output per worker has expanded by approximately 17.8%, the highest in the region. Thus, a high share of the state’s job losses resulted from increasing productivity. Creighton’s surveys over the past several months, point to an expansion in manufacturing output but with fewer manufacturing jobs through the (second quarter) of 2016,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group and chair in Regional Economics in the Heider College of Business.

Over the past several months, the regional index, much like the national Purchasing Managers’ Survey, has indicated that the Mid-America manufacturing sector is experiencing anemic but stabilizing, economic conditions as the nine-state region stretching from Arkansas to North Dakota expanded for a third straight month and moved above growth neutral for a second consecutive month.

Overall, the regional economy from Arkansas to North Dakota improved slightly to a still soft 50.6 from February’s 50.5. Over the past several months, the regional index, much like the national reading, has indicated the manufacturing sector is experiencing anemic, but stabilizing, economic conditions.

“A strong U.S. dollar and weakness among the nation’s chief trading partners remains a restraint on regional growth,” Goss said. “The strong U.S. dollar not only undermines exports, it also reduces the value of foreign earnings. The strong dollar has made U.S. goods much less competitively priced abroad.”

The regional employment gauge remained below growth neutral, but increased to 45.9 from February’s 44.4.

“Over the past year, the region’s manufacturing sector has lost approximately 1.7%, or roughly 23,000 manufacturing jobs. The losses in manufacturing have spilled over into the broader regional economy, and reduced overall annualized regional employment growth from 1.6%t to 0.6% over the past year. I expect the broader economy to continue to add jobs at this much slower pace,” said Goss.

This month, businesses were asked to report the starting salary for a supply manager with a bachelor’s degree and no experience. On average, businesses recorded a beginning salary of $47,800, which is up by 5.1% from March of last year when businesses were asked the same question.

The wholesale inflation index for March jumped to 62.2, its highest level since May of last year, and up from February’s 52.5. Prices for raw materials and supplies, as reported by regional supply managers, are rising at a pace, if matched in future months, will push the Federal Reserve to move short-term interest rates up at a pace higher than currently expected, Goss said.

Looking ahead six months, economic optimism, as captured by the March business confidence index, climbed to 51.4 from February’s 46.8.

“Improving prices for manufactured products and commodities bolstered positive expectations of future regional economic conditions,” said Goss.

In another sign of a slightly improving economic outlook, supply managers expanded their inventory levels for the month. The March inventory index, which tracks the change in the level of raw materials and supplies, climbed to 50.8 from 48.4 in February.

The new export orders improved to a growth neutral 50.0 from 46.1 in February. The import index for March rose to a solid 55.4 from February’s 50.1.

“The strong U.S. dollar, making U.S. goods less competitively priced abroad, and a weaker global economy, remain obstacles to improvements in export orders. On the other hand, the strong dollar, making foreign goods more competitively priced in the U.S., boosted imports for the month,” said the Creighton University economist.

This month supply managers were asked to gauge the importance of international market access.  Approximately 78% of businesses reported that, in terms of selling products and services, access to international markets is important to their businesses. Almost eight of 10 businesses reported, in terms of buying supplies of inputs and raw materials, that access to international markets is important to their company.

Other components of the March Business Conditions Index were new orders at 53.6 up from 52.5 in February; production or sales fell to 50.8 from February’s 54.2; and delivery speed of raw materials and supplies dipped to 52.1from last month’s 53.2.