Missouri Ag Connection - Mid-America Business Index Falls to Three-Year Low

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Mid-America Business Index Falls to Three-Year Low
Missouri Ag Connection - 12/03/2019

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.

Overall index: 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.

Employment: 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," said Goss.

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

Wholesale Prices: 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," said Goss.

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."

Confidence: 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," said Goss.

Inventories: 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.

Trade: 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 survey components: 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 (ISM), formerly the National Association of Purchasing Management. The Mid-America report is produced independently of the national ISM.

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," said Goss.

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