The monthly survey of supply managers in Iowa and eight other Midwest states finds the economy is still weakening at the state and regional levels.
Creighton University economist Ernie Goss says the lengthy report is boiled down to some key numbers on a zero-to-100 scale, where 50 is considered “growth neutral.”
“The May survey, the number was still above growth neutral, 51.0, and that’s slow-to-no growth I’ll call it,” Goss says. “Tariffs are really having some big impacts and they’re not positive. They’re mostly all negative.”
Iowa’s overall number during the April survey showed a 53, but the May number dropped a little over three points, going below growth neutral. There was so much hype about the looming tariffs earlier this year that Goss says many manufacturers were able to work ahead by ordering more parts and raw materials than they’d need.
“They advanced imports in the first quarter to get around or front-run the tariffs, and now we’re seeing some of the impacts,” Goss says. “For example, now the import rating is 29.8, obviously well below growth neutral of 50. So what happened is they did a lot of importing during the first quarter, now we’re in the course of the second quarter, and we pull back on imports.”
Goss says a significant number of businesses in the state and region are trying to find other places to get their supplies where perhaps the tariffs aren’t as steep.
“Approximately 34.8% have changed import sourcing, so they moved from one source to another source because of the tariffs. That was sort of surprising,” Goss says. “A little bit more than one-third have changed their sourcing for their inputs and that’s an important change.”
As a result of the slowing growth, Goss predicts a cut in short-term interest rates at the Federal Reserve’s next meetings, scheduled for June 17th and 18th.
In addition to Iowa, the survey also covers Arkansas, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota, though Goss says the less populated, agricultural states are feeling the worst impacts of tariffs.
“Manufacturing is slowing down in the U.S., slowing down in the Mid American region,” Goss says, “and we’re seeing the rural areas taking a hit more so than the urban areas.”
According to data from the U.S. International Trade Administration, the Iowa manufacturing sector exported $3.4 billion in goods during the first quarter of this year, compared to $4-billion for the same period last year, a drop of 8.6%.
