Business conditions index plummets on ag, shutdown

After rising for two months, the Mid-America Business Conditions Index tumbled in October to its lowest level since 2012.

The index, an economic indicator for Iowa and eight other states, fell to growth neutral 50 from 54.8 in September.

"The partial government shutdown, combined with pullbacks among firms with ties to agriculture, pushed overall economic conditions lower for the month," said Ernie Goss, director of Creighton University's Economic Forecasting Group, which compiles the monthly index from a survey of supply managers.

"Agriculture equipment manufacturers are reporting cuts in business growth," Goss said. "New export orders also declined dramatically for the month."

After eight straight months above growth neutral, the region's employment gauge fell below 50 for October, declining from 51.8 in September to 48.2 in October.

"This month, a fairly significant number of companies reported reducing hiring and temporarily cutting employment as a result of the partial government shutdown," Goss said. "Firms linked to agriculture continue to experience weak hiring and pullbacks in business activity."

The prices-paid index, which tracks the cost of purchased raw materials and supplies, declined for the month. The wholesale inflation gauge dipped to 63.1 from September's 64.8.

"While the inflation gauge remains in a range indicating only modest inflationary pressures, the Federal Reserve's $85 billion monthly bond buying stimulus program continues to boost asset prices such as farmland and housing at rates that are not sustainable," Goss said.

The Iowa Business Conditions Index declined for a fifth straight month, but remains at a healthy level. The overall index from a survey of supply managers for October declined from 63.3 last month to 58.5.

Components of the index for October were new orders at 58.0, production or sales at 65.4, delivery lead time at 56.4, employment at 52.9, and inventories at 59.6.

"Based on our surveys over the past several months, I expect Iowa's manufacturing growth to continue to diminish in the months ahead" Goss said. "Overall state growth will be positive, but down from the same period a year earlier."