Mid-American Economy

Mid-America Index Advances Above Growth Neutral: More Than Half of Supply Managers Reported Tariffs Increasing Prices

October survey highlights:

  • After two months of below growth neutral readings, the overall manufacturing index bounced above 50.0.

  • Despite the negative impacts of the trade war, more than half, or 54% of supply managers, support continuing or even expanding trade restrictions and tariffs on Chinese imports.

  • Both exports and imports declined for the month. 

  • Approximately 59.5% of supply managers reported that tariffs had increased the prices of supplies and inputs purchased by their firm.

  • The lack of available workers limited job growth in the region.

OMAHA, Neb. (Nov. 1, 2019) – The October Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, climbed above growth neutral after two straight months of below the 50.0 threshold.  

Overall index: After two straight months of below growth neutral readings, the region’s overall index moved above 50.0 for October. The Business Conditions Index, which ranges between 0 and 100, rose to 52.6 from September’s 49.1.

“For 2019, the Mid-America economy has been expanding at a pace well below that of the nation. The trade war and the global economic slowdown have cut regional growth to approximately one-half that of the U.S. October’s survey results indicate that regional growth is likely to bottom at positive, but slow rate, in fourth quarter of this year,” 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 October employment index increased to a weak 50.0 from September’s 46.7. The availability of workers continues to constrain job growth in the region.    

“For 2019, Mid-America annualized employment growth has been 1.0% compared to a much higher 1.9% for the U.S. Despite the negative impact of the trade war, more than half, or 54%, support continuing or expanding trade restrictions and tariffs on imports from China,” said Goss.  

Wholesale Prices: The wholesale inflation gauge for the month indicated only modest inflationary pressures with a wholesale price index of 57.0, up from 55.3 in August.

This month, 59.5% of supply managers reported that tariffs had increased the prices of supplies and inputs purchased by their firm. “However, tariffs have, to date, have had little impact on our wholesale inflation gauge,” said Goss. 

As reported by one supply manager, “Importers, manufacturers and retailers are the ones paying for the tariffs. Where is the money going that the U.S. government is collecting in tariffs?”

Even so, moderate wholesale inflation from our survey and national surveys support the Federal Reserve current wait and see approach. “I expect the Federal Reserve to make no additional rate changes in 2019,” reported Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the October Business Confidence Index, slipped to a very weak 47.3 from September’s 47.7 reading.

“I expect business confidence to depend heavily on trade talks with China, and the passage of the nation’s trade agreement with Canada and Mexico, or USMCA. Quick passage of USMCA is very important for the regional economy and business confidence,” said Goss.

Inventories: Companies shrank inventories of raw materials and supplies for the month, but at a slower pace with an index of 48.6, which was higher than September’s inventory index of 46.4. “This is yet another signal of weak business confidence as manufacturers reduce their inventories of raw materials and supplies based on an anemic sales outlook,” reported Goss.           

Trade: The regional trade numbers were very weak with both export orders and imports falling, but at a somewhat slower pace. The new export orders index increased to 44.7 from September’s 36.2, and the import index increased to 48.2 from 42.4 in September.

Other survey components: Other components of the October Business Conditions Index were new orders at 57.2, up from September’s 47.6; the production or sales index moved higher to 58.6 from September’s 50.0; and speed of deliveries of raw materials and supplies index at 48.6 was down significantly from last month’s 56.0.      

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 October Business Conditions Index for Arkansas increased to 53.4 from September’s 48.3. Components of the index from the monthly survey of supply managers were new orders at 59.2, production or sales at 57.9, delivery lead time at 49.2, inventories at 49.7, and employment at 51.2. Over the past 12 months the state’s manufacturing sector has boosted jobs by 1.3%, third among the nine Mid-America states, and hourly wages by 4.8%, also third in the region. Based on recent surveys of manufacturers in the state, I expect job growth to slow, but remain positive, and hourly wage growth to decline to an annualized range of 3.5% - 4.0% through the first quarter of 2020,” said Goss.

Iowa: After two straight months of below growth neutral readings, the state’s overall Business Conditions Index advanced above growth neutral 50.0 for October. The overall index climbed to 53.5 from September’s 49.6. Components of the overall index from the monthly survey of supply managers were new orders at 59.3, production or sales at 57.9, delivery lead time at 49.2, employment at 51.2, and inventories at 49.8. “Over the past 12 months the state’s manufacturing sector has boosted jobs by 2.5%, second among the nine Mid-America states, and hourly wages by 3.6%, fourth in the region. Based on recent surveys of manufacturers in the state, I expect job growth to slow, but remain positive, and hourly wage growth to continue at its current solid pace through the first quarter of 2020,” said Goss.

Kansas: The Kansas Business Conditions Index for October rose to 54.6 from September’s 51.1. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 62.0, production or sales at 56.9, delivery lead time at 50.0, employment at 52.8, and inventories at 51.3. “Over the past 12 months the manufacturing sector has boosted jobs by 0.9%, fifth among the nine Mid-America states, and hourly wages by 1.4%, eighth in the region. Based on recent surveys of manufacturers in the state, I expect job growth to remain at its current pace, and hourly wage growth to expand above its current pace through the first quarter of 2020,” said Goss. 

Minnesota: The October Business Conditions Index for Minnesota increased to 51.3 from 48.4 in September. Components of the overall October index from the monthly survey of supply managers were new orders at 50.2, production or sales at 58.4, delivery lead time at 48.7, inventories at 48.9, and employment at 50.3. “Over the past 12 months the state’s manufacturing sector shed jobs by 0.5%, eight among the nine Mid-America states, and hourly wages by 5.3%, second in the region. Based on recent surveys of manufacturers in the state, I expect job growth to move into positive territory but below an annualized pace of 1.0%, and annualized hourly wage growth to slow to a 3.5% - 4.0% range through the first quarter of 2020,” said Goss.

Missouri: The October Business Conditions Index for Missouri advanced to 53.6 from September’s 49.2. Components of the overall index from the survey of supply managers were new orders at 59.6, production or sales at 57.8, delivery lead time at 49.3, inventories at 50.0, and employment at 51.4. “Over the past 12 months the state’s manufacturing sector has boosted jobs by 0.9%, sixth among the nine Mid-America states, and hourly wages by 1.1%, last in the region. Based on recent surveys of manufacturers in the state, I expect job growth to accelerate but remain below an annualized rate of 1.5%, and hourly wage growth to rise significantly to an annualized range of 3.5% - 4.0% range through the first quarter of 2020,” said Goss.

Nebraska: After falling below growth neutral for August, Nebraska’s Business Conditions Index moved above the threshold for two straight months. The state’s overall index climbed to 53.7 from September’s 50.6. Components of the index from the monthly survey of supply managers were new orders at 59.7, production or sales at 57.7, delivery lead time at 49.3, inventories at 50.0, and employment at 51.5. “Over the past 12 months Nebraska’s manufacturing sector has boosted jobs by 0.7%, seventh among the nine Mid-America states, and hourly wages by 2.5%, also seventh in the region. Based on recent surveys of manufacturers in the state, I expect job growth to rise slightly, and hourly wage growth to expand at a higher annualized pace of 3.0% - 4.0% through the first quarter of 2020,” said Goss.

North Dakota: The October Business Conditions Index for North Dakota slipped to 49.7 from 50.1 in September. Components of the overall index were new orders at 50.3, production or sales at 58.4, delivery lead time at 45.8, employment at 48.7, and inventories at 45.4. “Over the past 12 months North Dakota’s manufacturing sector has boosted jobs by 1.1%, fourth among the nine Mid-America states, and hourly wages by 6.0%, first in the region. Based on recent surveys of manufacturers in the state, I expect job growth to slow, but remain positive, and annualized hourly wage growth to decline to less than 4% through the first quarter of 2020,” said Goss.

Oklahoma: Oklahoma’s Business Conditions Index has fallen below growth neutral for two of the last three months signaling slow to no growth in the months ahead. The overall index for October sank to 48.7 from September’s 50.1. Components of the overall October index were new orders at 52.7, production or sales at 58.4, delivery lead time at 42.3, inventories at 44.5, and employment at 45.6. “Over the past 12 months the state’s manufacturing sector has lost 1.5% of its employment, last among the nine Mid-America states, and hourly wages by 3.2%, fifth in the region. Based on recent surveys of manufacturers in the state, I expect job growth to move into positive territory, but remain below 1.0% annualized, and hourly wage growth to continue at its current solid pace through the first quarter of 2020,” said Goss. 

South Dakota: The October Business Conditions Index for South Dakota increased to 52.6 from September’s 47.8. Components of the overall index from the October survey of supply managers in the state were new orders at 57.3, production or sales at 58.6, delivery lead time at 48.6, inventories at 48.7, and employment at 50.1. “Over the past 12 months the state’s manufacturing sector has boosted jobs by 3.6%, first among the nine Mid-America states, and hourly wages by 3.2%, sixth in the region. Based on recent surveys of manufacturers in South Dakota, I expect job growth to slow, but remain positive, and hourly wage growth to continue at its current solid pace through the first quarter of 2020,” said Goss. 

Survey results for November will be released on the first business day, Dec. 2.