Mid-America Manufacturing Rockets to Record High: Wholesale Price Index Soars to 30 year high

News StaffMay 3, 2021Business
Midwest Economy

OMAHA, Neb. (May 3, 2021) – For an eleventh straight month, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, moved into growth territory.

Overall Index: The Business Conditions Index, which ranges between 0 and 100, soared to its highest level since initiation of the survey almost three decades ago. The index climbed to 73.9 from March’s very strong 68.9. Creighton’s regional manufacturing activity gauge is surging, but supply bottlenecks and labor shortages continue to restrain growth.

More than nine out of 10 supply managers, or 93%, reported supply bottlenecks, or delays, for April with 40% indicating that the delays were significant.

As reported by one supply manager, “The (freezing temperatures in the south) followed by panic buying and opportunistic price increases have further stressed supply chains. I believe this could be followed by a downturn.”

“In March and April of last year, the region lost 106,000 manufacturing jobs. However, since bottoming in April of last year, Mid-America has added 58,000 manufacturing jobs. Creighton’s monthly survey results indicate that the region is adding manufacturing business activity at a healthy pace, and that growth will remain strong well into the second half of 2021,” 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 April, but sank from 60.0 in March to 57.2 for April. “More than one of five, or 22%, of supply managers named finding and hiring qualified workers as the greatest 2021 challenge to their firm,” said Goss.

Other comments from April survey participants:
•    “Several suppliers are now on “allocation” from raw metal suppliers.”
•    “Aluminum and steel supplies and prices are of particular concern now and probably through July.”
•    “Tough year for procurement.”
•    “The supply chain madness continues.”

Wholesale Prices: The wholesale inflation gauge for the month surged to a record high 96.2, up from March’s 94.0.

As reported by a supply manager, “I purchase a lot of steel components and the increases are ridiculous. Steel availability is tight. I see hyperinflation coming.”

“At the wholesale level, Creighton’s survey is tracking higher and higher inflationary pressures.  Metal products and lumber, for example, are experiencing significant upward pressures in wholesale prices. Since June of last year, metal prices have expanded by 20.8%, and lumber products have advanced by 63.1% according to U.S. Bureau of Labor Statistics data. Despite rapidly expanding inflationary pressures at the wholesale level, the Federal Reserve remains committed to its current expansionary policy,” said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the April Business Confidence Index, climbed to a strong 64.8 from March’s solid 58.0.

“Despite supply bottlenecks, rapidly rising prices and labor shortages the expanding regional economy pushed economic confidence among manufacturing supply managers higher for the month,” said Goss.

Regarding purchasing managers greatest 2021 challenge:
•    Approximately 39% of supply managers indicated supply chain bottlenecks.
•    Approximately 30% of supply managers identified rapidly rising input prices.
•    More than one of five, or 22%, of supply managers named finding and hiring qualified workers.
•    Only 9% of the remaining supply managers indicated COVID-19.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, rose to 68.5 from last month’s 62.5.

Trade:  Despite supply chain bottlenecks, regional trade numbers were solid for the month. The new export orders index fell to 58.8 from March’s healthy 63.9. An expanding domestic manufacturing sector underpinned April’s import reading of 57.9, which was down from March’s 64.0.

As reported by one supply manager in April, “We import a lot of parts and its extremely difficult getting orders on time. Most everything is two to three months late.”

Other survey components of the April Business Conditions Index were: new orders rose to 81.5 from 70.9 in March; the production or sales index climbed to very strong 78.6 from March’s 70.0; and the index for the speed of deliveries of raw materials and supplies rocketed to 84.0, a record high, from 81.3 in March. 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.