Minnesota factories bucked a regional trend in May, seeing growth in a key manufacturing index while other central states showed slowdowns or economic losses as flooding and new trade woes took a toll, according to a Creighton University economic report released Monday.
Creighton's nine-state Mid-America Business Conditions Index fell to 54.3 in May from 55.9 in April as exports, inventory levels and confidence levels declined across nearly half of the region.
Any index above 50 signals growth, while figures below 50 show economic contraction.
Pounded by severe spring storms, flooding and in some cases tornadoes, Iowa, Nebraska, North Dakota and Oklahoma recorded overall indexes that were below the "growth neutral" threshold of 50 for the month.
In contrast, Minnesota's May index inched up to 55 from 54.5 in April amid a boost in new product orders and sales, especially for medical supplies, durable goods and nonfood products.
"The regional economy continues to expand at a positive pace. However, tariffs and flooding across several states pulled the overall index below growth neutral for four [of the nine] states [tracked]," said Ernie Goss, director of Creighton University's Economic Forecasting Group.
The nine-state region, which also includes South Dakota, Missouri, Kansas and Arkansas, saw declines in new orders, production and inventories. The inventory decline came even as 24 percent of surveyed factory heads reported ordering extra inventory last month.
"I expect sinking inventories to weigh on both regional and U.S. growth for the second quarter 2019," Goss said.
Several factories tried to mitigate the effect of rising trade wars the U.S. enacted against both China and more recently Mexico.
Nearly a quarter of manufacturing managers surveyed last month said they increased their supply orders in advance of the 25% trade tariffs that went into effect June 1 for $200 billion worth of Chinese imports.
Last week, President Donald Trump surprised manufacturers with a tweet announcing that he planned to impose a new 5% to 25% trade tariff on Mexican imports. That measure had little to do with trade and everything to do with trying to force Mexico's government to do more to curtail the flow of undocumented immigrants into the United States from Mexico.
Business owners surveyed by Creighton said they responded in several ways. Some 24% pre-ordered inventory supplies to avoid the new tariffs. About 13% switched suppliers to avoid the new levies. Some 62% of the manufacturers said the trade skirmishes were making it more difficult to purchase from abroad.
The survey found that some factory leaders blamed previous U.S. presidents for the trade woes. Others complained about the abrupt changes to U.S. policies and pleaded for a calmer, more thoughtful approach. Said one executive, "We need a measured approach to tariffs. Currently the USA lacks capacity in some types [of] paper materials."
Regardless of opinion, shifting trade policies are starting to show up in several economic reports, including the one released Monday.
Creighton's nine-state import index remained unchanged at 57 in May. Exports, however, shrunk to 48.5 in May from a healthy 53.9 in April. "I expect the latest announced tariffs against Mexico, if implemented, to push more Mid-America states into job-loss territory in the months ahead," Goss said.
In a separate, national report also released Monday, the Institute for Supply Management (ISM) reported that U.S. manufacturing growth also slowed in May, sliding to 52.1 index from 52.8 in April.
Eleven of 18 manufacturing industries reported growth in May, led by printing, furniture, plastics, textile mills, miscellaneous and electrical equipment. Industries losing ground included apparel/leather, primary metals, petroleum/coal and wood and paper product makers.