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Mid-America Index Sinks; 25 Percent Support Reducing or Eliminating Tariffs
USAgNet - 10/03/2018

The September Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, sank for the month, but remained above growth neutral, and continues to point to positive economic growth for the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, fell to 57.5 from August's strong 61.1. This is the 22nd straight month the index has remained above growth neutral 50.0.

"The regional economy continues to expand at a healthy pace. However, shortages of skilled workers remain an impediment to even stronger growth. Furthermore, supply managers are reporting mounting negative impacts from tariffs and trade skirmishes. I expect expanding tariffs, trade restrictions, and rising short-term interest rates from a more aggressive Federal Reserve, to slow regional growth to a more modest, but still positive pace 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.

In September, 54.0 percent of supply managers reported negative impacts from tariffs and trade skirmishes. Approximately 40.8 percent of the supply (purchasing) managers indicated that rising tariffs had made it more difficult or expensive to purchase from abroad.

Despite the negative fallout from tariffs, 29.4 percent of supply managers supported putting greater trade pressure on China, via expanding tariffs. On the other hand, 24.6 percent supported reducing or eliminating recently enacted tariffs.

As reported by a supply manager, "The tariffs have created a retaliatory climate which has made our products less competitive in the Canadian market (our primary market). Canadian pro-trade deals with China are also severely hurting our position. I am fundamentally anti-tariff, but it is time to try a different negotiating strategy. Repeating the same thing over and over expecting different results is insanity."

Employment: The September employment index slipped to a still solid 56.2 from August's 58.5.

"Overall manufacturing employment growth in the region over the past 12 months has been very healthy at 2.6 percent, compared to a much less robust 2.0 percent for the U.S.," Goss reported.

Wholesale Prices: The wholesale inflation gauge continues to indicate elevated inflationary pressures with an index of 76.1, but down from 80.5 in August.

Both Creighton's regional wholesale inflation index and the U.S. inflation gauge are elevated. Tariffs and expanding growth, for example, have boosted steel prices by 19.0 percent this calendar year alone. At the consumer level, the consumer price index advanced by 2.7 percent over the past 12 months.

"I expect rising tariffs, trade restrictions, and higher oil prices to continue to boost wholesale and consumer inflation growth above the Federal Reserve's target," Goss said. "The Fed raised short-term interest rates by one-quarter of one percentage point last week. I expect an identical rate hike (one-quarter percent) in December."

Confidence: Looking ahead six months, economic optimism, as captured by the September Business Confidence Index, soared to 68.0 from August's already strong 60.8.

"In terms of business confidence, rising trade tensions and tariffs, were more than offset by healthy profit growth, relatively low interest rates, and reduced tax rates," reported Goss.

Inventories: Companies expanded their inventories of raw materials and supplies, but at a slightly slower pace than in August. The September inventory index slipped to 56.3 from August's 58.8.

Trade: The regional new export orders index expanded to 53.1 from 51.8 in August, and the import index slipped to 57.2 from August's 58.1.

"Continuing positive export orders and imports are likely the result of firms in the U.S., and among trading partners, advancing purchasing in anticipation of expanding tariffs and trade restrictions in the months ahead," said Goss.

Other components: Components of the September Business Conditions Index were new orders at 59.4, down from 65.5 in August; the production or sales index at 58.4, down from August's 61.9; and speed of deliveries of raw materials and supplies index at 57.0, down from last month's 60.7.

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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