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Mid-America Expands but with Labor Shortages; Bottlenecks Expected to Worsen
Iowa Ag Connection - 12/02/2021

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, has remained above growth neutral for 18 of the last 19 months.

Overall Index: The Business Conditions Index, which uses the identical methodology as the national ISM, ranges between 0 and 100, fell to a still healthy 60.2 from October's even stronger 65.2.

"Creighton's monthly survey results indicate the region is adding manufacturing activity at a positive pace, and that regional growth will remain solid. In terms of supply chain disruptions and bottlenecks, approximately one-half of supply managers expect delays to worsen with only one in four anticipating improvements," 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.

Firms reported that transportation bottlenecks in trucking, and rail were the prime factors accounting for supply chain disruptions.

Supply managers named shortage of workers as the second most important factor producing supply disruptions, bottlenecks and delays.

Employment: The regional employment index remained significantly above growth neutral for November, but dropped to 61.1 from 66.1 in October.

"Despite healthy growth over the past year, compared to its pre-pandemic level, U.S. Bureau of Labor Statistics manufacturing employment data indicate that the region has lost 20,000 jobs, or 1.4%," said Goss.

Other November comments from supply mangers were:

- "Inventory is very low and orders are very high. Workforce is very hard to find. Where did all the people go?"

- "Supply management is over buying. It is similar to last year's consumer toilet paper shortage."

- "In the current shortage mentality, commercial entities are over forecasting, over buying, trying to over inventory. Seasoned supply management has seen this scenario play out before."

- "There will be a strong market correction. There is no good reason why we have a backlog of ships waiting to off load on the west coast."

Wholesale Prices: The wholesale inflation gauge for the month declined to an elevated 92.9 from October's 96.5. "Creighton's monthly survey is tracking the highest and most consistent inflationary pressures in more than a quarter of a century of conducting the survey," said Goss.

"According to the U.S. Bureau of Labor Statistics, commodity prices are up approximately 22.6% over the last 12 months with fuels expanding by 57.5%, farm products advancing by 18.5%, and metal products soaring by 45.5%.

Confidence: Looking ahead six months, economic optimism, as captured by the November Business Confidence Index climbed to a weak 46.2 from October's 37.0 which was its lowest level since the onset of COVID-19 in Quarter 1, 2020.

Inventories: The regional inventory index, reflecting levels of raw materials and supplies, sank to 52.0 from 64.4 in October.

According to one supply manager, "Nonseasoned supply managers have changed their mode of operations from 'just-in-time' to 'have a hunch, buy a bunch.'"

Trade: Despite supply chain bottlenecks, regional export numbers were positive for the month. The new export orders index advanced to 56.7 from October's 53.3, while port delays sank the import reading to 50.1 from 57.9 in October.

Other survey components of the November Business Conditions Index were: new orders rose to 57.4 from 50.0 in October; the production or sales index plummeted to 53.7 from 70.4 in October; and the index reading for the speed of deliveries of raw materials and supplies climbed to 76.8 from October's 75.0. A higher reading indicates more supply chain disruptions and delays.

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.

Iowa's Business Conditions Index for November declined to 59.4 from 67.8 in October. Components of the overall November index were: new orders at 57.1, production, or sales, at 49.9, delivery lead time at 79.5, employment at 63.3, and inventories at 72.3. According to U.S. Bureau of Labor Statistics, Iowa's seasonally adjusted manufacturing employment was down by fewer than 500 jobs, or 0.2%, compared to its pre-pandemic level. Job gains for the state's nondurable goods producers, including food processors, were more than offset by losses for the state's durable goods manufacturers such as metal producers.

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