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Slight Increase in Producer Sentiment Despite Rising Costs
USAgNet - 08/03/2022

The Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rose above growth neutral for the 26th straight month.

Overall Index: The Business Conditions Index, which uses the identical methodology as the national Institute for Supply Management (ISM) and ranges between 0 and 100 with 50.0 representing growth neutral, rose to a solid 59.8 from June's 58.6. The Mid-America report is produced independently from the national ISM.

"Creighton's monthly survey results indicate the region continues to add manufacturing activity at a solid pace, but with significant inflationary pressures ahead. Supply chain disruptions eased further in July, according to supply managers," 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.

Even with solid economic activity, supply managers were very pessimistic about the economy. As reported by one supply manager, there are "relatively new concerns with eminent recession and the impacts."

Employment: Despite healthy growth in monthly economic activity for almost two years, manufacturers in the region have added jobs at only a modest pace. That said, the employment index rose above growth neutral for the seventh straight month to 58.7, down from 59.7 in June. Except for Arkansas and South Dakota, non-farm employment levels, seasonally adjusted, remain below pre-pandemic levels for all states in the region.

This month, supply managers were asked to project their next yearly pay raise. "On average, manufacturing supply managers expect a raise of only 3.5%," said Goss.

Other July comments from supply managers were:

"We are seeing a very slight decrease in business levels. Lead times are still an issue."

"Another month of the same concerns -- recruiting and sustaining employees, inflation with the added pressure of raising price to match, supply chain constraints with SHIPPING COSTS BEING CRAZY STUPID."

"It's time to wake up or watch our great country get swallowed up by deranged global elitists in a fight for power and wealth!"

"Our orders are constantly having delays and cancelations. Deliveries are slower than normal. In fact, I had security radios sitting on a ship outside of Long Beach harbor for five months waiting to be unloaded last summer. I expect similar delays this year."

Wholesale Prices: The wholesale inflation gauge for the month declined to a still inflationary 82.8 from June's 88.0. "Creighton's monthly survey continues to track the highest and most consistent inflationary pressures at the wholesale level in more than a quarter of a century of conducting the survey," said Goss.

This month, supply managers projected price increases for their firms' prices. On average, supply managers expect their prices to climb by 7.4% over the next 12 months, which is down from their 7.7% projection last year at this time," said Goss.

According to the U.S. Bureau of Labor Statistics, commodity prices are up approximately 23.4% over the last 12 months with farm products advancing by 26.7%, metal products expanding by 15.6% and fuels soaring by 69.0% during this same time period.

"Given current significant inflationary pressures, I expect a rate hike of 0.50% at the Federal Reserve's interest rate setting committee meeting September 20-21, despite two consecutive declines in quarterly gross domestic product. Inflationary pressures remain too high for anything less," said Goss.

Confidence: Looking ahead six months, economic optimism as captured by the July Business Confidence Index, increased to a very weak 26.8 from 17.3 in June. "Confidence indices for 2022, all below growth neutral, are the worst recorded since the 2008-09 recession," said Goss.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, sank to 57.2 from June's 60.0.

Trade: Despite supply chain bottlenecks and a very strong dollar, regional exports were healthy for July with a reading of 61.8, down slightly from June's 62.5. On the other hand, the imports sank to 45.5 from June's 50.1.

Other survey components of the July Business Conditions Index: new orders climbed to 55.4 from 46.0 in June; the production or sales index increased to 55.4 from 54.2 in June; and the speed of deliveries of raw materials and supplies slipped to 72.5 from June's 73.1. This lower reading indicates a reduction in supply chain disruptions and delays for the month.

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.

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