The Midwestern economy is growing despite stubbornly high inflation and a workforce shortage, according to Creighton University’s February Mid-America Business Conditions Index.
The index increased nine points to 56 in February, its highest mark since July, after sitting below growth-neutral for three straight months. The increase came even as the wholesale inflation gauge increased six points to 80, a six-month high. The Consumer Price Index increased 6.4 percent on an annual basis in January, similar to the 6.5 percent increase in December.
“While it’s too early to tell if this is an end to the downward trend, it was certainly promising on the growth front,” said Ernie Goss, director of Creighton University’s Economic Forecasting Group. “However, the soaring inflation reading serves as a very negative signal for financial markets and the Federal Reserve.”
The index for economic optimism increased 13 points to a still-low 38 as supply managers cited supply delays and disruptions as their firm’s greatest threats this year.
Four of ten supply managers expect a recession this year.
Stubbornly high inflation readings are likely to cause the Federal Reserve Open Market Committee to increase the federal funds rate by 50 basis points later this month, said Goss, Jack A. MacAllister chair in regional economics in the Heider College of Business. The Fed has already raised the federal funds rate to a range of 4.5 percent and 4.75 percent from near-zero early in 2022, including by 25 basis points at its February meeting.
The regional hiring gauge increased six points to 52. Nearly half of firms raised entry-level wages to match the inflation rate to cope with worker shortages and persistently high inflation. Another 20 percent raised entry-level wages above the inflation rate to recruit new employees.