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Trade War Making Purchasing More Difficult
USAgNet - 06/17/2019

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.

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