Ag, energy sectors weigh down Midwest economy

Business index remains below growth neutral for second month

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A monthly survey of corporate supply managers by Creighton University shows continuing weakness in manufacturing linked to agriculture and energy is weighing heavily on regional economic conditions.

The Midwest Business Conditions Index increased slightly to 47.8 in August from July’s 47.6, but for the second straight month the index moved below 50 or growth neutral.

Government data show that over the past 12 months, the region’s manufacturing sector lost more than 22,000 jobs, but added a total of 102,000 nonfarm jobs.

“Due to the heavy dependence of the region on these two sectors, I will expect to see the regional economy to continue to underperform the national economy,” said Ernie Goss, director of Creighton’s Economic Forecasting Group, in a news release.

“Over the past 12 months, the region has experienced nonfarm job growth of 0.7 percent compared with 1.7 percent for the United States. This gap is likely to continue for the remainder of 2016.”

Due to the weak manufacturing labor market in the region, supply managers expect wages and salaries to grow by a tepid 2.1 percent over the next year.

The August Business Conditions Index for Iowa expanded to a weak 48.3 from July’s 47.9. Components of the overall index for August from the monthly survey of supply managers were new orders at 43.7, production or sales at 44.6, delivery lead time at 55.8, employment at 44.6, and inventories at 53.1.

“Metal manufacturers and agricultural machinery producers continue to experience pullbacks in economic activity,” Goss said. “On the other hand, food processors in the state are boosting production and employment.”

The new export orders index slipped to 50.1 from 52.5 in July.

“Expansions among global trading partners more than offset a relatively strong U.S. dollar to maintain a reading above growth neutral for the export reading,” Goss said. “A strong U.S. dollar makes U.S. goods less competitively priced abroad.”

Goss said he expects a Federal Reserve rate increase to push the value of the dollar higher, which will pull export orders lower.

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