The surging business conditions in nine Midwest and Plains states will be tested by trade conflicts and other factors that could slow growth, an economist said in a survey report issued Friday.
The Mid-America Business Conditions Index recorded its highest mark in 14 years last month, hitting 67.3 in May, compared with 64.5 in April, according to the report. The March figure was 62.1.
This is the 18th straight month the index has remained above growth neutral 50.0, pointing to strong growth for the region over the next three to six months.
“The Goldilocks economy — not too hot, not too cold — will be tested in the months ahead as trade skirmishes and potential wars slow growth and contribute to higher prices for inputs such as steel and aluminum,” said Creighton University economist Ernie Goss, who oversees the survey. “These higher prices will slow growth and push the Federal Reserve to be more aggressive in raising interest rates in the weeks and months ahead.”
The survey results are compiled into a collection of indexes ranging from zero to 100. Survey organizers say any score above 50 suggests growth in that factor. A score below that suggests decline. The survey covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.
The wholesale inflation index hit 88.9 in May, the highest figure since April 2011, and up from 85.7 in April.
“Both our regional wholesale inflation index and the U.S. inflation gauge are elevated. I expect this elevated inflation to begin to show up at the consumer level,” said Goss, who added that he consequently expects the Federal Reserve to raise short-term interest rates by a quarter of a percentage point later this month.
Economic optimism, as reflected by May’s business confidence index, decreased to 66.3 from April’s 70.2.
Healthy profit growth, still low interest rates, and lower tax rates, kept business confidence into a range indicating robust confidence, Goss said. However, he said, the May survey was conducted before the announcement of higher U.S. tariffs on steel and aluminum.