By Matt Kelley (Radio Iowa)

The monthly survey of supply managers in Iowa and eight other Midwestern states shows both the state and regional economies took big falls during July. Creighton University economist Ernie Goss says it’s a warning sign for the economy in the months ahead, as the overall Business Conditions Index indicates a significant slowdown is looming in the Midwestern manufacturing sector.

“This is not a good number and it’s contrary to a lot of numbers we’re seeing coming out,” Goss says, “but it’s very consistent with what we’re seeing coming out from the national supply managers’ survey in terms of manufacturing.” The index is measured on a 0-100 scale, with 50 being growth neutral. The survey shows the Midwest economy dropped from 50.8 in June to 46.1 in July, while Iowa’s economy fell much further, from 55.4 in June to 46 in July.

Despite some recent optimism about the U.S. economy’s overall performance, the survey shows the region’s supply managers estimate there’s almost a 50-50 chance of a recession in the second half of this year. Goss expects what he’s calling “a rolling recession” to impact certain sectors of the economy, especially commercial real estate and manufacturing. “I think the optimism we’re seeing in national surveys right now is a bit overdone,” Goss says. “The economy is just not going to expand at the current expectations of investors and politicians and political leaders out there.”

The overall index for the region was the lowest overall reading since the beginning of the pandemic in May of 2020, he says. Only about one in five supply managers reported job gains in July as it remains challenging to find and hire qualified workers due to low unemployment rates and what Goss calls “labor hoarding.”  “Those employment numbers are not going to be as good as the expectations right now among investors, among politicians and some economists,” Goss says. “Now, this is manufacturing, but it’s going to affect the overall employment reading, the overall hiring number in the weeks and months ahead.”

The Creighton survey shows the impact of inflation is continuing to lessen. The July survey recorded its lowest inflation gauge reading since December of 2022. Still, Goss says the supply managers they surveyed expect wholesale prices to rise by nearly 5% over the next 12 months. “We’re continuing to see things moving lower in terms of commodity prices,” Goss says, “but again, our purchasing managers and supply managers in manufacturing expect that to grow over the next six months to a year.” Another key area to watch is the real estate market, which Goss says is “iffy.”

While new home sales are growing dramatically, he says existing home sales are not good and prices are falling. According to data from the U.S. International Trade Association, Iowa exports expanded by 7.5% in the first five months of this year compared to last year, while the state’s leading export, machinery manufacturing, expanded by more than 34% from 2022 to 2023.