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Supply Managers Report Tariffs Making Purchasing More Difficult
South Dakota Ag Connection - 03/12/2019

The February Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, rose to its highest level since September of last year signaling solid growth for the region over the next three to six months.

Overall index: The Business Conditions Index, which ranges between 0 and 100, climbed to 57.9 from January's 56.0. This is the 27th straight month the index has remained above growth neutral 50.0.

"The regional economy continues to expand at a positive pace. However, as in recent months, shortages of skilled workers and international trade tension/tariffs remain an impediment to even stronger growth. Surprisingly, almost one-fourth of supply managers support raising tariffs even more on the import of Chinese goods. An almost equal percentage support reducing tariffs on Chinese imports," 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 February employment index expanded to a strong 59.0 from January's healthy 58.5.

"Overall manufacturing employment growth in the region over the past 12 months has been very healthy and exceeded that of the nation," said Goss. "I expect this gap to close in the months ahead as regional job growth slows more than national manufacturing job growth. Regional job growth for durable-goods producers has been approximately three times that of non-durable goods manufacturers over recent months."

Wholesale Prices: The wholesale inflation gauge continues to indicate softening inflationary pressures. The February price-index plummeted to 64.1 from January's 76.3.

Both Creighton's regional wholesale inflation index and the U.S. inflation gauge have weakened recently. While tariffs and expanding growth, for example, have boosted steel prices over the past 12 months, prices of other goods have pulled our inflation gauge, and the Federal Reserve's target rate below their objective.

"I expect slowing growth to push both wholesale and consumer inflation lower even lower in the months ahead," Goss said. "Due to prices at the consumer level moving at an acceptable pace, I do not expect the Federal Reserve to raise interest before its September meetings," said Goss.

Confidence: Looking ahead six months, economic optimism, as captured by the February Business Confidence Index, advanced to 58.8 from January's 53.7.

"However, I expect business confidence to depend heavily on trade talks with China. Approximately half, or 49.0 percent, of supply manager reported that current tariffs and restrictions had made it more difficult for their firm to purchase internationally," reported Goss.

Inventories: Companies expanded inventories of raw materials and supplies for the month. The February inventory index increased slightly to 57.8 from January's 57.7.

Trade: The regional trade numbers for February were solid with both imports and exports advancing. The new export orders index moved higher to a solid 55.6 from January's 48.3, and the import index expanded to 54.8 from 54.4 in January. "Despite higher tariffs on imported goods, healthy regional growth boosted imports for the month, as new export orders improved for the month," said Goss.

Other survey components: Components of the Business Conditions Index were new orders at 55.3, down from January's 56.2; the production or sales index at 53.9, unchanged from January; and speed of deliveries of raw materials and supplies index at 63.8 and up sharply from last month's 53.8.

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 February Business Conditions Index for South Dakota climbed to a regional high of 68.7 from January's 66.2, also a regional high. Components of the overall index from the February survey of supply managers in the state were new orders at 63.7, production or sales at 64.6, delivery lead time at 76.3, inventories at 69.7, and employment at 69.2. "South Dakota is estimated to have exported $60.8 million in goods to China for 2018, making it number eight in the region. The exports to China supported approximately 600 jobs in South Dakota for 2018," said Goss.

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