Regional business conditions anemic, Arkansas holds steady but still below ‘growth neutral’

by Wesley Brown ([email protected]) 152 views 

The weak business conditions across the nine-state Mid-America region that includes Arkansas continued in August as the energy and agriculture sectors weigh down on overall economic growth, according to Creighton University’s Mid-America Business Conditions Index released Thursday (Sept. 1).

Ernie Goss, director of Creighton’s Economic Forecasting Group and chair of regional economics in the Heider College of Business, said weakness among manufacturers tied to agriculture and energy prevents the regional economy from keeping pace with overall U.S. growth.

“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,” Goss said. “Over the past 12 months, for example, the region has experienced nonfarm job growth of 0.7% compared to 1.7% for the U.S. This gap is likely to continue for the remainder of 2016.”

The regional economic snapshot from Creighton Economic Forecasting Group, which mirrors the national Purchasing Managers Institute (PMI) monthly survey, has been conducted from a 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.

The August Business Conditions Index, which ranges between 0 and 100, increased slightly to 47.8 from July’s 47.6. However, this is the second straight month the index has moved below growth neutral 50.  Over the past several months the regional index, much like the national reading, has indicated the manufacturing sector is experiencing anemic to negative business conditions.

In Arkansas, the overall business index for August grew slightly to 47.5 from 47.3 in July. Components of the index from the monthly survey of supply managers were new orders at 43.5, production or sales at 44.4, delivery lead time at 53.6, inventories at 52.3, and employment at 44.

Over the past 12 months, Arkansas seen overall job growth of 1.2%, but the manufacturing sector has declined by 0.8%.

MANUFACTURING DOWN 22,000 JOBS IN NINE-STATE AREA
The employment gauge indicates the nine-state regional manufacturing sector continues to lose jobs. The index sank to 44 from July’s 46.9. As a result of the weak manufacturing labor market in the region, supply managers expect wages and salaries to grow by a tepid 2.1% over the next year.

“Over the past 12 months, U.S. Bureau of Labor Statistics data indicate the region’s manufacturing sector has lost more than 22,000 jobs for a loss of 1.6 percent of total manufacturing jobs,” Goss said. “During the same time period, the region has gained a total of 102,000 jobs for all sectors for an increase of 0.8%.”

The wholesale inflation gauge remained in a range indicating modest inflationary pressures at the wholesale level, though the prices-paid index declined to 56.5 from July’s 60.8. On average, supply managers expect the prices for their firm’s products to expand by 1.6% in the second half of 2016. Goss said even though wholesale price inflation remains in a range indicating only modest upward price pressures, he expects 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% for nine straight months,” he said.
Economic optimism, as captured by the August business confidence index, sank to 45.4 from July’s 47. Global economic uncertainty and weakness in the region’s agricultural and energy sector are weighing on the business economic outlook of supply managers, Goss said.

INVENTORIES AND IMPORTS
The August inventory index, which tracks the change in the level of raw materials and supplies, rebounded to 52.3 from July’s 43.5. The new export orders index slipped to 50.1 from 52.5 in July.

“Expansions among global trading partners more than offset a relatively strong U.S. dollar to maintain a reading above growth neutral for the export reading. A strong U.S. dollar makes U.S. goods less competitively priced abroad,” Goss said. “However, I do expect a Federal Reserve rate hike to push the value of the dollar higher, which will pull export orders lower.”

The import index for August fell to 45.8 from July’s 51. Other components of the August Business Conditions Index were new orders at 44.4, up from 41.9 in July; production or sales were 45.2 for August, down from 47.6; and delivery speed of raw materials and supplies declined to 52.9 from last month’s 58.3.

Nationally, the PMI’s monthly survey from the Institute for Supply Management, which was also released Thursday, shows economic activity in the manufacturing sector contracted in August following five consecutive months of expansion. According to ISM economist Bradley Holcomb, most manufacturing-related industries saw a slowdown in business from July to August.

“Manufacturing contracted in August for the first time since February of this year, as only six of our 18 industries reported an increase in new orders in August (down from 12 in July), and only eight of our 18 industries reported an increase in production in August (down from nine in July),” Holcomb said.

The August PMI registered 49.4%, down from the July reading of 52.6%. The New Orders Index registered 49.1%, down from the July reading of 56.9%. The Production Index registered 49.6%, down from the July reading of 55.4 percent. The Employment Index registered 48.3%, down from the July reading of 49.4%.