Economic Trends
February 2015 | Creighton Institute for Economic Inquiry
|
Greetings
Welcome to our February report covering Creighton's January survey results. Creighton's monthly survey of supply managers and procurement experts in nine Mid-America states indicates the economy is likely to continue to grow at a positive pace with inflationary pressures declining. Creighton's monthly survey of bank CEOs in rural areas of 10 states points to slower growth in the months ahead for areas dependent on crop production and energy.
Creighton University
Jack MacAllister Chair in Regional Economics
|
|
From the Desk of Ernie Goss
High Wage Jobs Move to Right-to-Work States,
Union-Shop States Lose Manufacturing Jobs
Just last month, Mercedes-Benz announced that, in order to become more cost-competitive, it was moving its U.S. headquarters from New Jersey, a union-shop state, to Georgia, a right-to-work state.
Right-to-work laws, as authorized by the 1947 Taft-Hartley Act and passed by Georgia, prohibit unions and employers from entering into agreements that require employees to join a union and pay union dues in order to get or keep a job. Twenty-four states have enacted right-to-work laws. The remaining 26 states and DC are union-shop states that require an employee to become a member of the union in order to retain a job.
Union leaders maintain the objective of right-to-work laws is to sow dissension among workers and weaken the labor movement. Proponents of right-to-work laws assert that as a matter of economic freedom, workers should not be required to join a union and that this freedom supports greater economic growth among right-to-work states. Economic data from 2000 to 2013 show right-to-work states did expand economic growth, as measured by non-inflation-adjusted GDP, by 70.7 percent compared to 59.3 percent for union-shop states.
During this same period of time, right-to-work states expanded manufacturing wages and salaries by a median 7.7 percent, while union-shop states experienced a median 3.0 percent decline in manufacturing wages and salaries. In fact, 16 of the 26 union-shop states suffered a decline in manufacturing wages and salaries, while only 6 of the 24 right-to-work states experienced a decrease. Furthermore, the share of manufacturing jobs held by union-shop states fell from 55.1 percent to 53.9 percent over the thirteen year period. But the union-shop states' share of the nation's high-wage heavy manufacturing jobs sank by an even larger three percentage points.
Data show high wage manufacturing industries, normally dominated by unions, such as steel and automobile, are moving to and expanding in right-to-work states. With manufacturing firms becoming increasingly mobile, the pressure to pass right-to-work laws will grow in the years ahead. I expect Missouri to be the next state to leave the union-shop coalition. Read more articles on Professor Goss' blog Economic Trends.
|
Mid-America & Rural Mainstreet Indicators Graph
|
Mid-America Region
Growth Outlook Improves for Mid-America in January: Higher Wholesale Inflation Expected
January survey results at a glance:
- Leading economic indicator climbed for the month.
- On average a 2.5% growth in wholesale prices is expected for 2015.
- New hiring expanded at a slower pace for the month.
- Wholesale price index remains muted, indicating very modest inflationary pressures.
- Approximately one-third of supply managers are concerned about declining customer demand, followed by one fifth who are concerned about growing regulatory costs in 2015.
- Business confidence remains very healthy.
|
Rural Mainstreet
Index Remains Weak for January: Cash Farmland Rents Expected to Fall by 16 Percent in 2015
January survey results at a glance:
- The Rural Mainstreet Index advanced slightly for January, indicating tepid growth in the regional economy.
- Farmland prices sank for the 14th straight month.
- Bankers expect 2015 cash rents to decline to $214 from last year's $254.
- Approximately 71% of bankers reported lower oil prices have not affected ethanol production in their area.
- One half of bank CEOs reported rising regulatory costs represent the biggest threat to their banks in 2015.
|
| The Outlook
Professor Goss' forecast for February 2015:
- Housing price growth should move even lower in the months ahead.
- Central banks across the globe will continue to lower interest rates by making the same mistake made by the U.S. Federal Reserve and launching a sovereign bond buying program. Few sovereign economies suffer from too high interest rates. German bond rates are already as low as 0.5% (yes you read that right). Most economies need structural economic reform that encourages work rather than leisure. This is outside the purview of central banks.
- The U.S. trade deficit is about to soar. If your business depends on exports, it is going to be tougher in the months ahead as nations across the globe devalue their currencies via QE-like programs.
National Association of Business Economics (NABE) Business Conditions Survey - January 2015:
- ""For many companies, the great deflation in oil prices was the most consequential economic shock of 2014. Three-quarters of survey panelists expect lower oil prices to impact their business in 2015, with most anticipating a positive impact," said Survey Chair Jim Diffley, senior director, IHS.
- "Investment by the oil and gas industry has been a key driver in US economic growth. The big question for 2015 is the impact of lower prices on that investment and its concomitant supply chain. Sales growth improved slightly during the fourth quarter of 2014. Fifty-four percent of respondents reported rising sales at their firms in the fourth quarter survey compared to 49% in the October survey. Falling sales were reported by 15% of respondents, a larger share than was reported in the third quarter (7%). Also, a solid majority of survey panelists from all sectors expect that sales will rise during the first quarter of 2015."
|
|
Opportunities
- U.S. employers added 257,000 jobs in January and average hourly wages expanded by a strong 0.5% for the month.
- In the 12 months ending in November 2014, the Case-Shiller index indicated average U.S. home prices rose by 4.3 percent. This is good news but I am concerned that the growth in the index is coming down too fast.
- The consumer price index (CPI) for December 2014 was only 0.8% higher than that for December 2013. This is good news for bond holders but is well below the Fed's targeted 2%.
Bad News
- U.S. retail sales for December 2014 and January 2015 declined from the previous month.
- U.S. GDP grew by a paltry 2.4% in 2014. Growth should be in the 4% - 5%.
- The value of the U.S. dollar continues to climb against most major global currencies. These gains are pushing the U.S. trade deficit higher as U.S. goods become less competitively priced abroad.
|
|
|
|
9-State Supply Manager Report * Minnesota
* Missouri
* Nebraska
* North Dakota
* Oklahoma
* South Dakota
Read state-by-state, six-month projections by supply managers from nine states surveyed regarding current economic conditions in their communities.
|
Value Stock Pick
of the Month
Thanks to a single-day 7% price drop in October, IBM is now trading at a price to earnings multiple significantly lower than its 10-year moving average. The company has seen some falling revenues due to intense competition from cloud-computing firms but CEO Ginni Rometty has outlined a solid strategy to both broaden the reach of its hardware segment and expand IBM's services and software businesses. The company's stock price is likely to fluctuate in the short-term but I foresee generous returns for the patient investor with a long investment horizon. - Tim Switzer,
Creighton Institute for Economic Inquiry
|
Goss Eggs
Recent Dumb
Economic Moves
President Obama's recent plan to offer free community college tuition is so wrong on so many fronts.
First, it injects more federal interference into higher education. Second, the American taxpayer cannot afford it. Third, and most importantly, students need to have "skin in the game" to prevent over-consuming of this "free" education. The economy needs more community college educated workers but it is a community issue, not a federal one.
|
|
CPI:
On February 26, the U.S. Bureau of Labor Statistics (BLS) releases consumer prices (CPI) for January. If this reading remains soft (i.e. monthly growth of less than 0.2%), bond prices should rebound and potentially push the Federal Reserve to delay a rate hike.
_ _ _
Retail sales:
On March 12, the Census Bureau releases retail sales for February 2015. Given recent weakness in retail sales, there is real concern about consumer strength. A year-over-year gain of more than 5.5% will be bullish for the U.S. economy and U.S. stocks and bearish for bond prices (higher yields).
_ _ _
Wage growth:
On Friday March 6, the U.S. Bureau of Labor Statistics (BLS) will release hourly wage growth numbers. Another monthly gain of 0.4% or more will encourage the Federal Reserve to raise short term interest rates earlier than expected. Currently the market expects a rate hike in June 2015.
|
|
