Home » News » Report: Business Conditions Index on the rise

Report: Business Conditions Index on the rise

News release

The Creighton University Mid-America Business Conditions Index for February, a leading economic indicator for a nine-state region stretching from Arkansas to North Dakota, expanded for a second straight month.

Overall index: The February Business Conditions Index, which ranges between 0 and 100, improved to a still soft 50.5 from January’s 48.3.  Over the past several months, the regional index, much like the national reading, has indicated that 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. For example against the currency of region’s primary trading partner, Canada, the U.S. dollar has strengthened by 30 percent since July 2014.  This upturn has made U.S. goods much less competitively priced in Canada,” said Ernie Goss, Ph.D., 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 gauge sank for February to 44.4 from January’s 49.3.  “Employment is a lagging economic indicator. Therefore, I expect the solid improvement in new orders and production for the month to spill over into the job market in the months ahead with modest gains for the overall regional labor market.  However, I expect for job losses to continue for the two energy dependent states, North Dakota and Oklahoma,” said Goss.

This month, businesses were asked to name the greatest economic threat facing their firm for 2016. Approximately 17.5 percent indicated finding and hiring qualified workers would be the biggest challenge or threat to business success in the coming year. Approximately 39.7 percent of businesses reported U.S. economic weakness represented the greatest economic threat for 2016.  The remaining responses were spread across many other issues according to the supply managers.

Wholesale Prices: The wholesale inflation index for February rose slightly to 52.5 from January’s 52.4. “Prices for raw materials and supplies, as reported by regional supply managers, are rising at a pace that gives the Federal Reserve flexibility in terms of the need for rate changes at their March meetings---neither too much inflation nor deflation,” said Goss.

In February, supply managers were asked about the impact of an implementation of a March Federal Reserve rate increase. Approximately 25.4 percent said a rate hike would have a negative impact on their business while 3.9 percent said that they anticipate positive impacts from any rate increase. The remaining 70.7 percent expect no impact from a March Federal Reserve rate hike.

Confidence: Looking ahead six months, economic optimism, as captured by the February business confidence index, climbed to 46.8 from January’s 42.2. “Falling and/or weak agriculture and energy commodity prices, along with global economic uncertainty, continue to restrain supply managers’ expectations of future economic conditions,” said Goss.

Inventories: In another sign of a sinking economic outlook, supply managers reduced their inventory levels for the month at a somewhat faster pace. The February inventory index, which tracks the change in the level of raw materials and supplies, dropped to 48.4 from 49.3 in January.

Trade: The new export orders improved to a still weak 46.1 from 40.0 in January.  The import index for February slipped to 50.1 from January’s 53.1. “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 above growth neutral for the month,” said Goss.

Other components:  Components of the February Business Conditions Index were new orders at 52.5, up from 43.7 in January; production or sales moved higher to 54.2 from January’s 45.3; and delivery speed of raw materials and supplies dipped to 53.2 from last month’s 53.9.

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, formerly the National Association of Purchasing Management.

Leave a Reply

Your email address will not be published. Required fields are marked *

*