Business

Survey finds negative impact of trade war on Midwestern states

Regional economy growing at slower pace

Ernie Goss

Creighton University
Ernie Goss Creighton University

A survey of supply managers in Iowa and eight other Midwestern states found the trade war between the United States and China is having a negative effect on many companies.

The September Creighton University Mid-America Business Conditions Index fell below 50, or neutral growth, for a second straight month. The index dipped to 49.1 in September from 49.3 in August.

Readings above 50 indicate a growing economy and those below 50 indicate a slowing economy.

After 32 straight months of growth readings, the region’s overall index moved below 50 in August and September.

Ernie Goss, director of Creighton University’s Economic Forecasting Group, said in a statement that the Mid-America economy has been expanding in 2019 at a pace well below that of the nation.

“The trade war and the global economic slowdown have cut regional growth to approximately two-thirds that of the U.S.,” Goss said.

“Based on the last two months of surveys of manufacturing supply managers, the U.S. and Mid-America economies are likely to move even lower in the months ahead.”

Goss said the Mid-America and U.S. indices would have to move to between 42 and 45 to clearly signal a recession for the first half of 2020.

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“The probabilities of a recession in the first half of 2020 have risen significantly in the past several months,” he said.

Looking ahead six months, economic optimism, as captured by the September Business Confidence Index, improved slightly to 47.7 from August’s 45, a 35-month low for the confidence 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,” Goss said.

“Quick passage of USMCA is very important for the regional economy.”

Eighteen percent of supply managers surveyed in September said their company had changed suppliers due to tariffs and retaliation.

In some cases, companies continued with the same vendors, which had moved manufacturing from China to another country to avoid the tariffs.

Iowa’s overall business conditions index sank below 50 for the second straight month to 49.6 from August’s 49.7.

Components of the overall index were new orders at 45.9, production or sales at 49.1, delivery lead time at 57.0, employment at 48.3, and inventories at 47.9.

“Construction activity remained strong in Iowa,” Goss said. “Durable and nondurable manufacturers experienced solid growth over the past several months.

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“New orders and hiring among manufacturers for the last two months signal slowing economic conditions. Ethanol producers in the state reported significant pullbacks in the economic activity,”

Siouxland Energy Cooperative idled production at its Sioux Center plant on Sept. 9 for the first extended period of time since it opened in 2000.

Two other ethanol plants also have shut down due to a supply glut and lower demand following President Donald Trump’s granting of ethanol blending waivers to 31 oil refineries.

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