Mid-America index falls as imports rise in anticipation of tariffs

The November Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, sank below growth neutral to its lowest level in three years.

This is the third time in the last four months that the overall reading has fallen below a growth neutral 50.0. The Business Conditions Index, which ranges between 0 and 100, slumped to 48.6 from October’s 52.6.

“Slow global growth and trade skirmishes and wars are negatively affecting growth among manufacturers in the region. For 2019, manufacturing in Mid-America lost jobs at a pace of minus 0.1% compared to a positive job growth of 0.04% for U.S. manufacturing,” 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, Omaha, Nebraska.

The November employment index plummeted to 37.2, its lowest in four years, from 50.0 in October. The availability of workers continues to constrain job growth in the region.

“Despite the negative impact of the trade war on jobs, 60% of supply managers in our survey, support continuing, or even expanding, trade restrictions and tariffs on imports from China,” Goss said.

As one supply manager responded, “Tariffs should be applied to combat unfair trade practices (dumping) or due to adequate domestic supply.”

The wholesale inflation gauge for the month indicated only modest inflationary pressures with a wholesale price index of 65.7, up from 57.0 in October.

This month, 43% of supply managers reported tariffs had increased the prices of supplies and inputs purchased by their firm. However, one supply manager said, “The increase in commodities purchased are the result of tariffs.”

“Tariffs have, to date, had only a modest impact on our wholesale inflation gauge,” Goss said.

Passing on the tariffs

Only 17% of supply managers expect their firms to absorb the cost of tariffs. Approximately 77% indicated that ultimately consumers pay for tariffs.

Another supply manager said, “Open market trade benefits a wider range of consumers over isolating certain items through tariffs.”

Looking ahead six months, economic optimism, as captured by the November Business Confidence Index, climbed to 52.9 from October’s very weak 47.3.

“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,” Goss said.

Companies expanded inventories of raw materials and supplies significantly for the month with an index of 54.6 from last month’s 48.6. “Supply managers expanded their inventories in anticipation of higher tariffs in the weeks and months ahead,” reported Goss.

Regional numbers

The regional trade numbers were mixed with new export orders plummeting to 39.1 from October’s 44.7. On the other hand, imports climbed to 52.0 from last month’s below growth neutral reading. Supply managers advanced purchasing from abroad in anticipation of higher tariffs in the weeks and months ahead.

Other components of the November Business Conditions Index were new orders at 45.6, down from October’s 57.2; the production or sales index moved lower to 44.1 from October’s 58.6; and speed of deliveries of raw materials and supplies index at 61.4, was up significantly from last month’s 48.6.

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, formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

State reports

Arkansas: The November Business Conditions Index for Arkansas sank to 49.7 from October’s 53.4. Components of the index from the monthly survey of supply managers were new orders at 47.8, production or sales at 43.4, delivery lead time at 56.4, inventories at 62.4, and employment at 38.4. “Over the past 12 months Arkansas’ manufacturing sector has boosted hourly wages by 4.6%, fourth in the nine-state region. Both durable and nondurable goods are shedding jobs at a slightly negative pace,” Goss said.

Iowa: After rising above growth neural for October, the state’s overall Business Conditions Index slumped below growth neutral 50.0 for November, falling to 49.2 from October’s 53.5. Components of the overall index from the monthly survey of supply managers were new orders at 46.8, production or sales at 43.7, delivery lead time at 61.9, employment at 37.9, and inventories at 55.5. “Over the past 12 months the state’s manufacturing sector has lifted hourly wages by 3.2%, seventh in the nine-state region. Agriculture equipment manufacturers are adding jobs at a slow pace, while transportation equipment producers are losing jobs at a measured pace,” Goss said.

Kansas: The Kansas Business Conditions Index for November decreased to 51.0 from October’s 54.6. Components of the leading economic indicator from the monthly survey of supply managers were new orders at 52.1, production or sales at 42.8, delivery lead time at 63.2, employment at 39.3, and inventories at 57.7. “Over the past 12 months the state’s manufacturing sector has increased hourly wages by 2.3%, ninth in the nine-state region. Aerospace product and parts manufacturers are adding jobs at a solid pace, while food producers are experiencing flat job levels,” said Goss.

Minnesota: The November Business Conditions Index for Minnesota slipped to 50.9 from 51.3 in October. Components of the overall November index from the monthly survey of supply managers were new orders at 47.0, production or sales at 52.9, delivery lead time at 61.8, inventories at 55.2, and employment at 37.7. “Over the past 12 months the state’s manufacturing sector has lifted hourly wages by 5.6%, third in the nine-state region. Medical equipment producers are adding jobs at a solid pace, while food processors are shedding jobs,” Goss said.

Missouri: The November Business Conditions Index for Missouri sank to 48.4 from October’s 53.6. Components of the overall index from the survey of supply managers were new orders at 46.7, production or sales at 43.9, delivery lead time at 59.8, inventories at 55.1, and employment at 37.6. “Over the past 12 months the state’s manufacturing sector has boosted hourly wages by 2.4%, eighth in the nine-state region. While manufacturing job losses for November were noteworthy, metal products producers and computer and component manufacturers are adding jobs at a solid pace,” Goss said.

Nebraska: The Business Conditions Index fell below growth neutral after rising above the 50.0 threshold for two straight months. The state’s overall index sank to 48.2 from 53.7 in October. Components of the index from the monthly survey of supply managers were new orders at 44.6, production or sales at 44.3, delivery lead time at 61.1, inventories at 54.1, and employment at 36.9. “Over the past 12 months the state’s manufacturing sector has lifted hourly wages by 3.8%, fifth in the nine-state region. Farm machinery manufacturers are shedding jobs, but at a slight pace, while food producers are adding jobs at a positive rate,” Goss said.

North Dakota: The November Business Conditions Index for North Dakota rose slightly to 50.0 from 49.7 in October. Components of the overall index were new orders at 49.4, production or sales at 43.4, delivery lead time at 62.4, employment at 38.5, and inventories at 56.4. “Over the past 12 months the state’s manufacturing sector has boosted hourly wages by 6.2%, second in the nine-state region. Durable goods manufacturers are adding jobs at a positive pace while nondurable goods producers are losing jobs at a slow pace,” Goss said.

Oklahoma: For a second straight month, Oklahoma’s Business Conditions Index sank below growth neutral signaling slow to no growth in the months ahead. The overall index for November sank to 47.8 from October’s 48.7. Components of the overall November index were new orders at 43.6, production or sales at 44.5, delivery lead time at 60.9, inventories at 53.6, and employment at 36.6. “Over the past 12 months the state’s manufacturing sector has increased hourly wages by 3.5%, sixth in the nine-state region. Both durable and nondurable goods manufacturers are experiencing job losses,” Goss said.

South Dakota: The November Business Conditions Index for South Dakota fell to 48.9 from October’s 52.6. Components of the overall index from the November survey of supply managers in the state were new orders at 37.5, production or sales at 43.9, delivery lead time at 61.7, inventories at 55.0, and employment at 46.6. “Over the past 12 months the state’s manufacturing sector has lifted hourly wages by 8.7%, first in the nine-state region. Until November, both durable and nondurable goods manufacturers had been adding jobs at a solid pace,” Goss said.