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Index: Mid-America Economy Expanding Below U.S. Pace
South Dakota Ag Connection - 11/07/2019

The October Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, climbed above growth neutral after two straight months of below the 50.0 threshold.

Overall index: After two straight months of below growth neutral readings, the region's overall index moved above 50.0 for October. The Business Conditions Index, which ranges between 0 and 100, rose to 52.6 from September's 49.1.

"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 one-half that of the U.S. October's survey results indicate that regional growth is likely to bottom at positive, but slow rate, in fourth quarter of this year," 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 October employment index increased to a weak 50.0 from September's 46.7. The availability of workers continues to constrain job growth in the region.

"For 2019, Mid-America annualized employment growth has been 1.0% compared to a much higher 1.9% for the U.S. Despite the negative impact of the trade war, more than half, or 54%, support continuing or expanding trade restrictions and tariffs on imports from China," said Goss.

Wholesale Prices: The wholesale inflation gauge for the month indicated only modest inflationary pressures with a wholesale price index of 57.0, up from 55.3 in August.

This month, 59.5% of supply managers reported that tariffs had increased the prices of supplies and inputs purchased by their firm. "However, tariffs have, to date, have had little impact on our wholesale inflation gauge," said Goss.

As reported by one supply manager, "Importers, manufacturers and retailers are the ones paying for the tariffs. Where is the money going that the U.S. government is collecting in tariffs?"

Even so, moderate wholesale inflation from our survey and national surveys support the Federal Reserve current wait and see approach. "I expect the Federal Reserve to make no additional rate changes in 2019," reported Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the October Business Confidence Index, slipped to a very weak 47.3 from September's 47.7 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 and business confidence," said Goss.

Inventories: Companies shrank inventories of raw materials and supplies for the month, but at a slower pace with an index of 48.6, which was higher than September's inventory index of 46.4. "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.

Trade: The regional trade numbers were very weak with both export orders and imports falling, but at a somewhat slower pace. The new export orders index increased to 44.7 from September's 36.2, and the import index increased to 48.2 from 42.4 in September.

Other survey components: Other components of the October Business Conditions Index were new orders at 57.2, up from September's 47.6; the production or sales index moved higher to 58.6 from September's 50.0; and speed of deliveries of raw materials and supplies index at 48.6 was down significantly from last month's 56.0.

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 October Business Conditions Index for South Dakota increased to 52.6 from September's 47.8. Components of the overall index from the October survey of supply managers in the state were new orders at 57.3, production or sales at 58.6, delivery lead time at 48.6, inventories at 48.7, and employment at 50.1. "Over the past 12 months the state's manufacturing sector has boosted jobs by 3.6%, first among the nine Mid-America states, and hourly wages by 3.2%, sixth in the region. Based on recent surveys of manufacturers in South Dakota, I expect job growth to slow, but remain positive, and hourly wage growth to continue at its current solid pace through the first quarter of 2020," said Goss.

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