Mid-American Economy

Trade Issues Slow Mid-America Growth for May: Trade War Making Purchasing More Difficult

May survey highlights:

·      May overall index declines for second straight month; trade issues identified as mounting problem.

·      One in eight manufacturers reported switching suppliers to avoid growing tariffs.

·      Almost two-thirds of manufacturers indicated trade skirmishes were making it more difficult to purchase from
       abroad.

·      Four states, Iowa, Nebraska, North Dakota and Oklahoma recorded overall indices below growth neutral for the
       month.

·      Export orders slumped for the month.

OMAHA, Neb. (June 3, 2019) – The May Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell to a still solid reading signaling positive, but slowing, growth for the region over the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, declined to 54.3 from April’s 55.9. This is the second straight decline in the overall index, but the 30th straight month the index has remained above growth neutral 50.0.

“The regional economy continues to expand at a positive pace,” 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.  “However, tariffs and flooding across several states pulled the overall index below growth neutral for four states: Iowa, Nebraska, North Dakota and Oklahoma.  I expect the latest announced tariffs against Mexico, if implemented, to push more Mid-America states into job loss territory in the months ahead.”

As one supply manager noted,We need a measured approach to tariffs. Currently the USA lacks capacity in some types paper materials.” 

Other supply managers pinned the current trade situation on past U.S. presidents. As reported by one supply manger, “It's unfortunate that previous administrations allowed this to happen costing future generations a good standard of living and possibly their freedoms.”

Employment:  As a result of continuing worker shortages, the May employment index settled at a 52.2, but up from April’s tepid 51.1.

“Recent flooding and trade issues have pushed regional manufacturing employment back to December 2018 levels. U.S. Bureau of Labor Statistics data show that regional manufacturing employment in April stood at 1,466,000, unchanged from December’s reading,” said Goss. 

Wholesale Prices: The wholesale inflation gauge for the month indicated modest inflationary pressures for the month with a wholesale price index of 62.8, down from 67.5 in April. “I expect tariffs and flood impacts to put a floor under the wholesale inflation index in the months ahead,” said Goss.  

Confidence: Looking ahead six months, economic optimism, as captured by the May Business Confidence Index, slumped to 54.5 from April’s 62.2.

“However, I expect business confidence to depend heavily on trade talks with China and Mexico in the weeks and months ahead,” reported Goss.

Inventories: Companies contracted inventories of raw materials and supplies for the month, with  the May inventory index falling to 48.8 from 53.5 in April.            

Almost one-fourth, or 24.4 percent, of supply managers reported ordering early to avoid expanding tariffs.

“A significant boost in inventories for the first quarter was the prime factor pushing the U.S. GDP growth to 3.1 percent. I expect sinking inventories to weigh on both regional and U.S. growth for the second quarter 2019,” said Goss.

Trade: The regional trade numbers for May were mixed with export orders falling and imports unchanged.  The new export orders index sank to 48.5 from April’s 53.9, and the import index was unchanged from April’s 57.0.

More than one in eight manufacturers, or 13.3 percent, reported switching suppliers to avoid tariffs.  Furthermore, almost two-thirds of manufacturers, or 62.2 percent, indicated that trade skirmishes were making it more difficult to purchase from abroad.

Other survey components: Components of the May Business Conditions Index were new orders at 58.2, down from April’s 62.2; the production or sales index at 57.9 was down from April’s 58.4; and speed of deliveries of raw materials and supplies index at 54.4 was unchanged from last month’s 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, formerly the National Association of Purchasing Management.

Arkansas: The May Business Conditions Index for Arkansas declined to 55.9 from April’s 57.7 Components of the index from the monthly survey of supply managers were new orders at 61.2, production or sales at 57.8, delivery lead time at 57.9, inventories at 47.8, and employment at 54.9. “Arkansas manufacturers are expanding the average work week hours as well as hiring. Construction activity remains strong. Nondurable goods producers are adding jobs at a solid pace,” said Goss.

Iowa: For a second straight month, Iowa’s overall Business Conditions Index fell below growth neutral. The overall index for May sank to 47.0 from April’s 48.9. Components of the overall index from the monthly survey of supply managers were new orders at 49.9, production or sales at 47.3, delivery lead time at 43.3, employment at 47.3, and inventories at 44.3. “Flooding, especially in Western Iowa, stymied manufacturing activity in the state for the month. Large portions of I-29 in Iowa have been closed contributing to the May slowdown,” said Goss.

Kansas: The Kansas Business Conditions Index for May improved to 55.9 from 48.3 in April. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 60.2, production or sales at 60.6, delivery lead time at 55.4, employment at 53.2, and inventories at 50.2. “Durable goods manufacturers, including transportation equipment producers, reported solid gains for the month. Nondurable goods producers, including food processors, also indicated business gains for the month,” said Goss.

Minnesota: The May Business Conditions Index for Minnesota expanded to 55.0 from 54.5 in April. Components of the overall May index from the monthly survey of supply managers were new orders at 57.6, production or sales at 55.9, delivery lead time at 57.9, inventories at 51.1, and employment at 52.3. “Durable goods manufacturing, including medical equipment producers, experienced positive gains for the month, while nondurable goods producers, excluding food processors, detail advances for the month,” said Goss.

Missouri: The May Business Conditions Index for Missouri slipped to 57.1 from April’s 57.6. Components of the overall index from the survey of supply managers were new orders at 59.7, production or sales at 59.3, delivery lead time at 54.9, inventories at 54.3, and employment at 57.4. “Durable goods producers in the state, including metal manufacturers, detailed strong gains for the month. Likewise, nondurable goods producers, including foods processors, reported healthy expansions for the month,” said Goss.

Nebraska: For the first time since December, Nebraska’s Business Conditions Index has moved below the growth neutral threshold of 50.0. The state’s overall index fell in May to 48.9 from April’s 53.8. Components of the index from the monthly survey of supply managers were new orders at 53.9, production or sales at 52.5, delivery lead time at 47.9, inventories at 43.4, and employment at 46.8. “Durable goods producers in the state, including agriculture equipment manufacturers, experienced pullbacks for the month. Food processors and other nondurable goods producers experienced slowdowns for the month,” said Goss.

North Dakota: The May Business Conditions Index for North Dakota sank to 49.0 from 50.6 in April. Components of the overall index were new orders at 52.4, production or sales at 59.2, delivery lead time at 46.2, employment at 45.3, and inventories at 41.9. “Pullbacks in economic activity among the state’s nondurable goods producers, including food processors, more than offset soft, but positive, gains for durable goods manufacturers in the state,” said Goss.

Oklahoma: For a second straight month, Oklahoma’s Business Conditions Index fell below growth neutral 50.0. The overall index from a monthly survey of supply managers for May rose slightly to a weak 48.9 from 48.6 in April.  Components of the overall May index were new orders at 53.8, production or sales at 52.4, delivery lead time at 47.9, inventories at 43.4, and employment at 46.8. “Economic losses for the state’s durable goods and nondurable goods producers spilled over into other portions of the state’s economy for the month,” said Goss.

South Dakota: The May Business Conditions Index for South Dakota fell to a still solid 55.2 from April’s regional high of 62.2. Components of the overall index from the May survey of supply managers in the state were new orders at 54.2, production or sales at 52.9, delivery lead time at 58.3, inventories at 55.8, and employment at 54.6. “Both durable goods and nondurable goods manufacturers reported positive, but slowing growth for the month,” said Goss.

Survey results for June will be released on the first business day, July 1.