Midwest manufacturing economy remains strong

Manufacturing remains strong in the Midwest as decades-high inflation and ongoing supply chain bottlenecks ease, according to Creighton University’s monthly Business Conditions Index of supply managers. 

The Business Conditions Index dropped four points to 55 in August, but remained above the growth-neutral score of 50 for the 27th straight month. “The region continues to add manufacturing activity at a solid pace — with significant but declining inflationary pressures,” said Ernie Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister chair in regional economics in the Heider College of Business. “Supply chain disruptions eased further in August, according to supply managers.”

Employment grew in August, but the related index still fell seven points to 51. Supply chain and labor shortages continued to pose challenges: Nearly 6 in 10 supply managers said supply disruptions were their firm’s major challenge for the rest of this year. Such bottlenecks, plus the strong condition of the dollar, caused the export index to fall 18 points to 43. The expansion of regional manufacturing and the better condition of the dollar caused imports to increase seven points to 52.  

The wholesale inflation gauge remained historically high but declined six points to 76. Goss called the drop “encouraging, since it is the lowest wholesale inflation gauge since September 2020. As oil prices have stabilized at a lower level, so has inflation.” The Consumer Price Index increased 8.5 percent in July from the year prior, which was lower than the 9.1 percent increase in June.    

Business optimism for the next six months continues to be historically low, but increased six points to 32 last month. There are signs of a looming economic slowdown. During an Aug. 26 speech at the Jackson Hole Economic Policy Symposium, Federal Reserve Chair Jerome Powell said the U.S. economy will need a sustained slowdown and softer labor market conditions to ease high inflation readings. 

The monthly report includes a survey of supply managers in nine states, including Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.