Mid-American Economy

Mid-America Index Slumps Below Growth Neutral: Declines in Exports and Hiring Pushed Index into Negative Territory

August survey highlights:

• Overall index sank for the fourth time in the past five, months moving below growth neutral. Lower export orders and hiring pushed index into negative territory.

• Business confidence slumped to 35-month low.

• Export orders and imports slumped for the month.

• Approximately 44% of supply managers indicated that tariffs and trading issues were the greatest economic challenge for their company in the next 12 months.

• Six of 10 supply managers reported their customers would be paying the greatest share of tariffs.

OMAHA, Neb. (Sept. 3, 2019) – The August Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell below growth neutral for the first time since November 2016.

Overall index: The Business Conditions Index, which ranges between 0 and 100, slumped to 49.3 from July’s 52.0. After 32 straight months of above growth neutral readings, the region’s overall index moved below 50.0 in August.

“The regional economy expanded at a slower pace than the rest of the nation for the first eight months of 2019,” 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.

“Weakness in the region’s farm and manufacturing sectors produced by tariffs and a global economic slowdown pulled regional growth below that of the nation. Based on our manufacturing survey over the past several months, I expect overall growth to slow and potentially move into negative territory in the months ahead,” said Goss.

Employment: The August employment index plummeted to 45.1, its lowest level in 34 months, from 56.3 in July.

“For the last 12 months, Mid-America employment growth has been 0.7% compared to a much higher 1.5% for the U.S. This month, as in July, approximately 40% of supply managers reported that the shortage of qualified workers was the greatest economic challenge for their company for the next 12 months,” said Goss.

One supply manager reported that tight labor markets are making it difficult to expand, while another said, “We’re struggling to hire enough workers to meet our demand.”

Wholesale Prices: The wholesale inflation gauge for the month indicated reduced inflationary pressures with a wholesale price index of 63.4, down from 71.9 in July. “Tariffs have to date only had modest impact on our wholesale inflation gauge,” said Goss.

Moderate wholesale inflation from our survey and national surveys support another Federal Reserve rate cut. “I expect the Federal Reserve to reduce short-term interest rates again at its September meetings. Record low interest rates by global central banks and a strong U.S. dollar are pushing the Fed to continue reducing rates,” reported Goss.

A supply manager noted that, “Tariffs are another form of taxes on producers and the costs are passed on to consumers.”

According to one procurement professional, regarding who pays for tariffs. “It depends. Sometimes it is the seller; sometimes the purchaser; sometimes the final consumer.”

In August, six of 10 supply managers reported their customers would be paying the greatest share of tariffs.

Confidence: Looking ahead six months, economic optimism, as captured by the August Business Confidence Index, plunged to 45.0 from July’s 51.4. This is a 35-month low for the confidence reading.

“I expect business confidence to depend heavily on trade talks with China, the Federal Reserve’s interest rate actions in the weeks and months ahead, and recession signals from the nation’s financial markets,” reported Goss.

Inventories: Companies shrank inventories of raw materials and supplies for the month with the August inventory index plummeting to 41.5 from July’s 46.0. “This is yet another signal of declining business confidence as manufacturers reduce their inventories of raw materials and supplies based on a weak sales outlook,” reported Goss.

Trade: The regional trade numbers were down again with both export orders and imports falling. The new export orders index sank to 39.6, down from July’s 44.7, and the import index slumped to 42.3 from 43.8 in July.

“Two-thirds of our supply managers indicated that the trade war and tariffs were having negative impacts on their firm,” said Goss.

Other survey components: Other components of the August Business Conditions Index were new orders at 48.8, down from July’s 51.3; the production or sales index was unchanged from July’s reading 52.6; and speed of deliveries of raw materials and supplies index at 58.6, was up from last month’s 53.8 reading.

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.

Arkansas: The August Business Conditions Index for Arkansas fell to 48.2 from July’s 51.0. Components of the index from the monthly survey of supply managers were new orders at 45.9, production or sales at 52.4, delivery lead time at 58.8, inventories at 41.6, and employment at 42.3. “U.S. Bureau of Labor Statistics data indicate that Arkansas manufacturing workers ranked second in the nine-state region with a 5.8% increase in hourly earnings over the past 12 months. In terms of job growth, both durable and nondurable manufacturers in the state experienced solid growth over the past 12 months. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Iowa: After two straight months of above growth neutral readings, Iowa’s overall Business Conditions Index sank below the 50.0 threshold. The overall index for August dropped to 49.7 from July’s 52.6. Components of the overall index from the monthly survey of supply managers were new orders at 51.8, production or sales at 49.4, delivery lead time at 59.4, employment at 45.7, and inventories at 42.1. “U.S. Bureau of Labor Statistics data indicate that Iowa manufacturing workers ranked sixth in the nine-state region with a 3.1% increase in hourly earnings over the past year. In terms of job growth, both durable and nondurable manufacturers experienced slight positive growth over the past 12 months. However, the state’s manufacturing sector lost jobs in August according to Creighton’s surveys,” said Goss.

Kansas: The Kansas Business Conditions Index for August sank to 49.9 from July’s 52.1. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 49.8, production or sales at 59.9, delivery lead time at 51.4, employment at 46.1, and inventories at 42.1. “U.S. Bureau of Labor Statistics data indicate that Kansas manufacturing workers ranked last in the nine-state region with a 0.4% increase in hourly earnings over the past year. In terms of job growth over the past 12 months, durable goods manufacturers in the state experienced positive growth, while nondurable goods producers experienced flat job growth. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Minnesota: The August Business Conditions Index for Minnesota fell to 48.6 from 51.7 in July. Components of the overall August index from the monthly survey of supply managers were new orders at 52.2, production or sales at 49.0, delivery lead time at 58.9, inventories at 41.7, and employment at 41.1. “U.S. Bureau of Labor Statistics data indicate that Minnesota manufacturing workers ranked fourth in the nine-state region with a 4.4% increase in hourly earnings over the past year. In terms of job growth over the past 12 months, durable goods manufacturers in the state experienced slight growth while nondurable goods producers suffered job losses. The state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Missouri: The August Business Conditions Index for Missouri slumped to 50.1 from July’s 51.9. Components of the overall index from the survey of supply managers were new orders at 50.1, production or sales at 51.1, delivery lead time at 60.2, inventories at 42.6, and employment at 46.3. “U.S. Bureau of Labor Statistics data indicate that Missouri manufacturing workers ranked seventh in the nine-state region with a 1.4% increase in hourly earnings over the past year. In terms of job growth, both durable and nondurable manufacturers in the state experienced solid and positive growth over the past 12 months. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Nebraska: After two straight months with above growth neutral readings, Nebraska’s Business Conditions Index once again fell into negative territory. The state’s overall index tumbled to 49.3 from July’s 52.9. Components of the index from the monthly survey of supply managers were new orders at 49.6, production or sales at 51.6, delivery lead time at 59.7, inventories at 42.3, and employment at 43.4. “U.S. Bureau of Labor Statistics data indicate that Nebraska manufacturing workers ranked eighth in the nine-state region with a 1.2% increase in hourly earnings over the past year. Job growth over the past 12 months was flat for durable goods producers while nondurable manufacturers in the state experienced solid and positive growth. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

North Dakota: The August Business Conditions Index for North Dakota dropped to 51.2 from 55.4 in July. Components of the overall index were new orders at 49.7, production or sales at 52.7, delivery lead time at 59.5, employment at 45.9, and inventories at 47.8. “U.S. Bureau of Labor Statistics data indicate that North Dakota manufacturing workers ranked tops in the nine-state region with a 6.9% increase in hourly earnings over the past year. Job growth over the past 12 months was flat for nondurable goods producers while nondurable manufacturers in the state experienced positive growth. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Oklahoma: After two straight months with above growth neutral readings, Oklahoma’s Business Conditions Index once again dipped into negative territory. The overall index from a monthly survey of supply managers for August dropped to 49.6 from July’s 52.8. Components of the overall August index were new orders at 51.8, production or sales at 49.5, delivery lead time at 47.8, inventories at 45.8, and employment at 59.5. “U.S. Bureau of Labor Statistics data indicate that Oklahoma manufacturing workers ranked third in the nine-state region with a 5.1% increase in hourly earnings over the past year. In terms of job growth over the 12 months, both durable and nondurable goods producers experienced job losses. Oklahoma was the only state to add manufacturing jobs in August according to Creighton’s survey,” said Goss.

South Dakota: The August Business Conditions Index for South Dakota fell to 48.3 from July’s 52.5. Components of the overall index from the August survey of supply managers in the state were new orders at 51.7, production or sales at 49.5, delivery lead time at 52.1, inventories at 42.1, and employment at 45.8. “U.S. Bureau of Labor Statistics data indicate that South Dakota manufacturing workers ranked fifth in the nine-state region with a 3.8% increase in hourly earnings over the past year. In terms of job growth over the 12 months, job growth was solid and positive for both durable and nondurable goods producers in the state. However, the state’s manufacturing sector lost jobs in August according to Creighton’s survey,” said Goss.

Survey results for September will be released on the first business day, Oct. 1.