BIZ-MANUFACTURING-MIDWEST-MS

Manufacturing slowed down last month in the Midwest as companies report the negative impact of tariffs and flooding.

Pinched by trade tariffs and flooding, Midwest manufacturers grew in July at their slowest pace in 42 months as exports, inventories and confidence levels plunged, a widely watched economics report found.

Creighton University’s nine-state Mid-America Business Conditions Index, which includes Minnesota, Iowa and the Dakotas, fell to 52 from 55.4 in June, the university said Thursday.

While the regional index was above the critical threshold of “50” that separates growth from economic contraction, economists worried that the slowdown in Midwest factory growth may be here to stay for a spell.

“The regional economy expanded at a slower pace than the rest of the nation for the first half of 2019,” said Ernie Goss, director of Creighton’s Economic Forecasting Group. “Weak farm income, produced partially by tariffs and flooding, pulled regional growth below that of the nation. Even so, based on our manufacturing survey over the past several months, I expect overall growth to remain on a positive, but slower path.”

Employment held steady during the month while wholesale prices rose, indicating inflationary pressures across the region that also includes Kansas, Nebraska, Missouri, Arkansas and Oklahoma. The area’s confidence index fell sharply to 51.4 in July from 59 in June.

In Minnesota, the business conditions index fell to 51.7 in July from 53.4 in June. New orders and inventory levels across the state fell off while employment, wages and delivery times remained above board.

In Minnesota, “recent surveys indicate that durable manufacturers, including metal producers, are experiencing slow to no gains in economic activity,” Goss said. “Nondurable goods producers, including food processors, experienced slight negative economic conditions in recent months.”

More than half of surveyed factory heads in all nine states said trade tariffs had made it harder to buy supplies internationally.

Trade worries increased again on Thursday as U.S. President Donald Trump announced an additional new round of levies effective Sept. 1. This time, the United States will impose 10% tariffs on another $300 billion of goods imported from China. That levy is on top of the 25% tariffs that went into effect on June 1 for $200 billion of Chinese-made goods.

Manufacturers and economists across the country acknowledge that tough U.S. tariffs may force Chinese officials back to the negotiating table, but they also note that the U.S. tariffs and China’s retaliatory actions sting. The combination has increased supply prices and disrupted supply chains as U.S. manufacturers scrambled to find new product makers outside of China.

Moody Associate Managing Director Elena Duggar said in an email that Thursday’s “escalation of trade tensions will increasingly weigh on the global economy and supply chains in an environment of already decelerating growth in the US, the Euro area and China. Uncertainty will dampen business investment and trade flows.”

Federal Reserve Chairman Jerome Powell said on Thursday Trump’s trade policies and rhetoric add uncertainty to the economy and influenced the Fed’s decision to cut interest rates on Wednesday by a quarter point.

Goss largely agreed. “Agriculture was the first. The U.S. manufacturer will be the next casualty of the trade war,” he said.

Several multinational manufacturers including 3M, Graco, DowDuPont and H.B. Fuller recently reported quarterly financial results that signaled lackluster revenue growth and/or profit declines. Manufacturing executives noted slowdowns in China and Europe; flooding; decreased global demand in auto, adhesives and electronics sectors; trade tariffs; and negative foreign currency exchanges affected results to varying degrees.

The Creighton and other reports Thursday appeared to reinforce those corporate findings.

The Institute for Supply Management on Thursday said its overall manufacturing index slipped to 51.2 in July from 51.7% in June as production, employment and pricing growth slowed.

Of 18 manufacturing sectors, only nine grew in July, led by wood products and printing, furniture, food/beverage, plastics/rubber as well as computer and electronic products.