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Mid-America Wholesale Prices Soar to Another High: Outlook Plummets
Kansas Ag Connection - 08/03/2021

Since declining to a record low in April of last year, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, moved above growth neutral for 14 of the last 15 months.

Overall Index: The Business Conditions Index, which uses the identical methodology as the national ISM, ranges between 0 and 100, dipped to a still strong 73.1 from June's 73.5. However, as in previous months, between 80% and 90% of manufacturing supply managers report that labor shortages and supply bottlenecks continue to restrain growth.

"Creighton's monthly survey results indicate the region is adding manufacturing business activity at a very healthy pace, and that regional growth will remain strong. Absent supply bottlenecks and labor shortages, that growth would be even stronger," said Ernie Goss, PhD, director of Creighton University's Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.

Employment: The regional employment index remained above growth neutral for July rising to 67.2, its highest level in more than two decades, from 61.7 in June. "Even with strong manufacturing job growth, the region has yet to recover all job losses from the pandemic. The latest U.S. Bureau of Labor Statistics data indicate that current regional nonfarm employment is down by 540,000 jobs, or 3.9%, compared to pre-Covid-19 levels," said Goss.

Even with healthy job growth for the month, firms continue to report difficulties in finding and hiring new workers. As stated by one supply manager, "Despite hiring incentives it is very difficult to attract anyone, we are turning business away due to capacity limitations."

Wholesale Prices: The wholesale inflation gauge for the month surged to a record high 98.7 from June's 98.4, the previous record high.

"At the wholesale level, Creighton's survey is tracking higher and higher inflationary pressures. Commodity prices are up approximately 19.5% over the last 12 months according to U.S. Bureau of Labor Statistics data. Supply managers in Creighton's June survey expect prices for their firm's products to advance by 7.7% for the next 12 months," said Goss.

As stated by one survey manager, "Price increases are rampant. Air filters have had three price increases in the last year. Delivery is taking 30-60 days."

In terms of the burden of soaring input prices, 58.6% of supply managers expect the gain to be borne primarily by their customers while 37.9% expect company profits to absorb most of the hit, and only 3.5% anticipate that the increase will result in lower wages for workers.

Confidence: Looking ahead six months, economic optimism, as captured by the July Business Confidence Index, slumped to 53.6 from June's 60.8 and May's very strong 88.6.

"Supply bottlenecks, rapidly rising prices and labor shortages pushed economic confidence among manufacturing supply managers significantly lower for the month," said Goss.

One supply manger said, "There are so many economic cross currents. It is very difficult to forecast beyond six months."

Said another supply manager, "The US economy is only going to get worse under the Biden Administration as they push their global agenda and new world order."

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, climbed to 70.7 from last month's 67.9.

Trade: Despite supply chain bottlenecks, regional trade numbers were solid for the month. The new export orders index sank to a very healthy 63.9 from June's 72.2. An expanding domestic manufacturing sector boosted July's import reading to 65.3, which was up from June's 52.4.

Other survey components of the July Business Conditions Index were: new orders slipped to 73.5 from 75.9 in June; the production or sales index declined to 67.9 from June's 78.4; and the index reading for the speed of deliveries of raw materials and supplies rose to 84.5 from June's 83.9. A higher reading indicates slower deliveries.

The Creighton Economic Forecasting Group has conducted the 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 forecasting group's overall index, referred to as the Business Conditions 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 Business Conditions 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 since 1931 by the Institute for Supply Management (ISM), formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

The Kansas Business Conditions Index for July declined to 73.3 from 76.9 in June. Components of the leading economic indicator from the monthly survey of supply managers were: new orders at 73.6, production or sales at 66.0. delivery lead time at 84.3, employment at 66.9, and inventories at 75.9. "According to U.S. Bureau of Labor Statistics, average hourly wages for manufacturing production workers in Kansas declined 0.9% over the past 12 months. Among the nine Mid-America states, this growth ranked ninth, or last," said Goss.

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