Midwest manufacturing picked up the pace in December after three months of slowing but continued to experience setbacks in trade, with imports and exports both contracting for the first time in several months, a widely watched economics report said.
Creighton University’s nine-state Mid-America Business Conditions Index rose to a welcome 55.2 in December from 54.1 in November amid higher product orders, sales and delivery speeds and lower oil prices. Minnesota’s index grew to 55.5 in December from 53.9 in November.
Any index above 50 signals economic expansion, but the region hit a booming 61.1 in August before starting to slow.
Economists said that mid-50s growth is still good but cautioned that headwinds await. They noted that the confidence level of factory leaders slipped in December.
Ernie Goss, director of Creighton’s Economic Forecasting Group, said the regional economy continues to grow but added that in recent months a shortage of skilled workers was “an impediment to even stronger growth.”
“Furthermore, supply managers are reporting negative impacts from tariffs and trade skirmishes,” he said.
Goss said he expects that Minnesota will place third in economic growth among the nine states in the region. Besides Minnesota, the Creighton Mid-America report tracks manufacturing in Iowa, Missouri, Kansas, Nebraska, South Dakota, North Dakota, Arkansas and Oklahoma.
“For 2019, I expect that the leading industry for Minnesota will be manufacturers of medical equipment and supplies,” Goss said. “I [also] expect the state’s 2019 lagging industry to be transportation equipment producers.”
Surveyed factory leaders across the region noted that the labor shortage remains tough and said it hampered growth in the fourth quarter of 2018. Separately, the trade war with China and fallout from shifting Trump administration trade policies in Europe and North America have affected trade and significantly boosted supply costs, managers said.
The grumbling is starting to show in economic and company reports as well as relief requests filed with the U.S. Department of Commerce and the International Trade Commission.
Creighton’s Mid-America report found regional trade numbers fell sharply in December. Export orders contracted, with an index of 48.1, down from 51.8 in November. Imports plunged to 41.1 in December from November’s still healthy 54.3 index.
Many large manufacturers, such as 3M, Polaris Industries, Pentair, Toro, Cambria and Caterpillar, reported last quarter that the Trump administration’s 2018 trade tariffs had significantly boosted their supply costs and put wrinkles in the supply chain. Many warned Wall Street that they were forced to raise product prices in response and were continuing to look for ways to trim factory costs.
Additional details about trade and hiring woes are expected as most companies report fourth-quarter results later this month.
Separately, Bank of the West economist Scott Anderson reported on Wednesday that the Chinese Caixin Manufacturing Purchasing Managers index had declined for the first time in 19 months. The index was 49.7 in December, compared with 50.2 in November, as new orders and export orders out of China fell.
Anderson noted that the Caixin index report blamed the contraction on weaker demand in China and on trade tensions between the United States and China.
Stateside, Midwest factory heads surveyed by Creighton commented on their journey in December. One supply manager said the trade war with China had caused him to shift purchases to a supplier based in India. Another supply manager said the tariffs and trade wars will “ruin” the economy.
Trade tariffs aside, there were bright spots to the month. Oil prices fell enough to offset the impact of rising wholesale prices for most manufacturers in the region, Goss reported.
For Minnesota he noted that the state’s low 2.2 percent unemployment rate would continue to affect factories, but that certain industries were still well poised for growth.
The national Institute of Supply Management report that normally comes out at the same time as the Mid-America report will not be released until Thursday because of the holiday.