Mid-American Economy

Mid-America Index Slumps Below Growth Neutral Again: Almost Half Supply Managers Reported Negative Trade Impacts

September survey highlights:

• Overall index sank for the fifth time in the past six months and moved below growth neutral.

• Approximately one-half, or 48%, of supply managers indicated that the trade war was having a negative impact on their company.

• Approximately 18% of supply managers reported that their firm had changed vendors due to the trade war and related trade retaliation.

• Business confidence remained fragile.

OMAHA, Neb. (Oct. 1, 2019) – The September 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 a second straight month.

Overall index: The Business Conditions Index, which ranges between 0 and 100, slumped to 49.1 from August’s 49.3. After 32 straight months of above growth neutral readings, the region’s overall index moved below 50.0 in August and September.

“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 two-thirds that of the U.S. Based on the last two months of surveys of manufacturing supply managers, both the U.S. and Mid-America economies, are likely to move even lower in the months ahead,” 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.  

“Both the Mid-America and U.S. indices would have to move to between 42.0 and 45.0 to clearly signal a recession for the first half of 2020. However, the probabilities of a recession in the first half of 2020 have risen significantly in the past several months,” said Goss.

Employment:  The September employment index increased to a weak 46.7 from August’s 45.1, which was the lowest in 34 months.   

“For 2019, Mid-America annualized employment growth has been 0.8% compared to a much higher 1.3% for the U.S. This month almost one-half, or 48.0%, of supply managers reported that the trade war has had a negative impact on their business hiring and operations,” said Goss.  

Wholesale Prices: The wholesale inflation gauge for the month indicated reduced inflationary pressures with a wholesale price index of 55.3 from 63.4 in August. “Tariffs have, to date, have had little 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.

Confidence: Looking ahead six months, economic optimism, as captured by the September Business Confidence Index, improved slightly to 47.7 from August’s 45.0, a 35-month low for the confidence 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,” reported Goss.

Inventories: Companies shrank inventories of raw materials and supplies for the month, but at a lower pace with an index of 46.4, which was higher than August’s inventory index of 41.5. “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.           

Regarding buying from abroad, 18% of supply managers indicated that their firm had changed vendors due to tariffs and retaliation. Said one supply manger, “In some of the cases we have not changed suppliers, but have changed the location of manufacturing away from China to another country.”

As reported by one supply manager, “(I) spent 2 weeks in China and Malaysia in September. Interesting to see China manufacturers building in other Asiana countries to avoid tariffs.”

Trade: The regional trade numbers were down again with both export orders and imports falling. The new export orders index sank to 36.2, down from August’s 39.6, and the import index increased slightly to 42.4 from 42.3 in August.

Other survey components: Other components of the September Business Conditions Index were new orders at 47.6 down from August’s 48.8; the production or sales index moved lower to 50.0 from August’s 52.6; and speed of deliveries of raw materials and supplies index at 56.0 was down from last month’s 58.6.      

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 September Business Conditions Index for Arkansas increased slightly to 48.3 from August’s 48.2. Components of the index from the monthly survey of supply managers were new orders at 44.2, production or sales at 49.6, delivery lead time at 56.5, inventories at 47.1, and employment at 44.3. Construction activity remained strong in the state. Both durable and nondurable manufacturers experienced solid growth over the past several months. However, new orders and hiring among manufacturers for the last two months signal slowing economic conditions in the state,” said Goss.

Iowa: The state’s overall Business Conditions Index sank below the 50.0 threshold for second straight month to 49.6 from August’s 49.7. Components of the overall index from the monthly survey of supply managers were new orders at 45.9, production or sales at 49.1, delivery lead time at 57.0, employment at 48.3, and inventories at 47.9. “Construction activity remained strong in the state. Both durable and nondurable manufacturers experienced solid growth over the past several months. However, new orders and hiring among manufacturers for the last two months signal slowing economic conditions. Ethanol producers in the state report significant pullbacks in the economic activity,” said Goss.

Kansas: The Kansas Business Conditions Index for September rose to 51.1 from August’s 49.9. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 51.4, production or sales at 48.7, delivery lead time at 57.5, employment at 49.2, and inventories at 48.8. “Durable and nondurable goods producers have been expanding at a slow, but positive pace, over the past several months. However, survey results over the past two months point to even slower growth in the months ahead,” said Goss.

Minnesota: The September Business Conditions Index for Minnesota fell to 48.4 from 48.6 in August. Components of the overall September index from the monthly survey of supply managers were new orders at 49.7, production or sales at 49.7, delivery lead time at 56.3, inventories at 43.1, and employment at 44.6. “Construction activity in the state remains very strong even as durable and nondurable goods manufacturers reported pullbacks in economic activity. Medical equipment manufacturers are bucking the downward trend with solid gains, while food processors and ethanol producers continue to experience pullbacks in economic activity,” said Goss.

Missouri: The September Business Conditions Index for Missouri slumped to 49.2 from August’s 50.1. Components of the overall index from the survey of supply managers were new orders at 48.9, production or sales at 48.8, delivery lead time at 55.2, inventories at 42.3, and employment at 48.8. “Construction activity in the state continues to improve. Both durable and nondurable goods manufacturers are experiencing essentially flat growth with new orders and other indicators pointing to slow to no growth in the months ahead for manufacturing in the state with nonmanufacturing expanding at a slower pace,” said Goss.

Nebraska: After falling below growth neutral for August, Nebraska’s Business Conditions Index once moved slightly into growth positive territory. The state’s overall index climbed to 50.6 from August’s 49.3. Components of the index from the monthly survey of supply managers were new orders at 49.3, production or sales at 49.0, delivery lead time at 57.1, inventories at 48.2, and employment at 49.4. “Construction activity in the state continues to improve. Both durable and nondurable goods manufacturers are experiencing almost flat growth with new orders and other indicators pointing to slow to no growth in the months ahead for manufacturing in the state with non-manufacturing expanding at a slower pace,” said Goss.

North Dakota: The September Business Conditions Index for North Dakota slipped to 50.1 from 51.2 in August. Components of the overall index were new orders at 49.2, production or sales at 49.4, delivery lead time at 56.6, employment at 47.7, and inventories at 47.4. “Growth in the state’s large energy sector and related industries has slowed for much of 2019. Slow growth in the state’s durable goods manufacturing sector offset pullbacks among nondurable goods producers in the state.  Overall growth in the state economy will remain positive, but slower in the final quarter of 2019,” said Goss.

Oklahoma: After moving below growth neutral for August, Oklahoma’s Business Conditions Index once again advanced into positive territory in September. The overall index from a monthly survey of supply managers for September rose to 50.1 from August’s 49.2.  Components of the overall September index were new orders at 49.2, production or sales at 49.4, delivery lead time at 56.7, inventories at 47.5, and employment at 47.8. “Growth in the state’s large energy sector and related industries has slowed for much of 2019.  Business pullbacks among the state’s durable goods and nondurable goods manufacturing sectors offset improving growth among the state’s nonmanufacturing sector. Overall growth in the state economy will remain positive, but slower in the final quarter of 2019 due to negative spillover from manufacturing,” said Goss.

South Dakota: The September Business Conditions Index for South Dakota sank to 47.8 from August’s 48.3. Components of the overall index from the September survey of supply managers in the state were new orders at 42.6, production or sales at 49.5, delivery lead time at 56.5, inventories at 47.2, and employment at 43.2. “Construction activity in the state continues to improve. Both durable and nondurable goods manufacturers are experiencing almost flat growth with new orders and other indicators pointing to slow to no growth in the months ahead for manufacturing in the state with nonmanufacturing expanding at a slower pace,” said Goss.

Survey results for October will be released on the first business day, Nov. 1.