Iowa business leaders predict slowing economy as trade war with China continues

Tyler Jett

Sept. 30, 2019

With their frustration growing over the trade war with China, Iowa business leaders are less confident in their companies' outlooks than they were at the beginning of the year.

The Iowa Business Council's Economic Outlook Survey Index, released Monday, fell for the second quarter in a row. The index is a measure of whether companies think the economy is expanding or contracting. It is based on their answers to questions about whether they expect to hire more workers, buy equipment and see their sales increase in the next six months.

The index for the third quarter of 2019 was 62.5, which still suggests Iowa's economy is growing. (Any score above 50 indicates expansion.) But it is the lowest so far this year. The index was at 65.5 in the first quarter of the year and 63.75 in the second quarter.

Less spending, less hiring
Compared to the beginning of the year, Iowa's executives say they are less likely to buy equipment or add to their workforce.

Asked about their purchasing plans, 56% of executives told the Business Council they expect their budget for equipment to either remain flat or decrease over the next six months.

A slightly higher proportion of executives — 61% — said they expect the size of their employee roster to either remain flat or decrease over the same period.

Both figures suggest decreased confidence. While the capital spending section of the index was at 64.13 in the first quarter of the year, it was at 61.1 in the latest report. And while the hiring section of the index was at 60.87 in the first quarter, it is now 56.94.

Similar trend
The Business Council's findings are in line with what another statewide business organization has found. The Iowa Association of Business and Industry's quarterly anonymous survey also showed decreased confidence.

In the results released last week, 60% of the employers surveyed said they plan to purchase capital equipment in the next six months, down from 97% in December.

Company leaders also told the ABI they expect their hiring to decline. At this time last year, 59% of executives said they expected to increase hiring over the next 12 months. Now, that figure is 33%.

The proportion who say they expect their employment numbers to decrease has risen to 13% from 6% a year ago.

Sales growth
The Business Council's survey suggests most companies think sales will grow over the next six months.

Still, business leaders' confidence in that forecast is not quite what it was at the beginning of the year. The sales portion of the index was 71.74 in the first quarter. It is now 69.45.

The ABI found even less confidence. According to its survey, just 47% of company leaders expect sales to increase over the next year. This time last year, that figure was 71%.

Trade policies to blame
In a statement Monday, Iowa Business Council Executive Director Georgia Van Gundy said company leaders are still worried about the outcome of President Donald Trump's trade battle with China.

Since July 2018, the two countries have hit each other with four rounds of tariffs. The United States has slapped levies on $375 billion worth of Chinese goods over the last 15 months. China, meanwhile, has implemented tariffs on $185 billion worth of U.S. goods.

"Our members cite the trade war and an uncertain geopolitical climate as the leading major disruptors for their growth," Van Gundy said.

To offset problems with the Chinese market, the Business Council and the ABI both have lobbied Iowa's congressional delegation to ratify the United States-Mexico-Canada Agreement, the replacement of the North American Free Trade Agreement, which Trump criticized as unfair to American workers.

ABI President Michael Ralston said the company leaders still hope the Trump administration can dictate better terms for American businesses. In particular, they hope the administration can secure better protection for their intellectual property when they do business with China. 

But as he has continued to meet with executives over the year, Ralston said, he has seen their patience grow thin. While farmers have suffered most directly from the trade wars, he said, Iowa manufacturers that supply equipment like tractors and storage bins also are seeing decreased sales.

“Folks are still willing to let the administration play things out," he said. "But there is great concern that these tariffs are doing strong damage to the ag economy, in particular. And that affects the other markets.”

Consumers still confident
The less-optimistic indexes come at the same time that most consumer spending is holding steady. The University of Michigan's Consumer Sentiment Index was at 93.2 in September. That is slightly below the average during the Trump administration (97) but above the average since 2010 (85.2). 

Iowa State University Economist Peter Orazem said the indexes suggest business owners are thinking more about the future than most people. A typical consumer is worried about the next couple of paychecks; unless they have a big purchase on the horizon, like a car or a house, they aren't necessarily worried about the larger economic issues, he said.

"If you’re in the international trade business and you see recessions in Germany and some of the other countries in Europe, you might be OK right now," Orazem said. "But you’re wondering what the next year is going to have. I think businesses, by themselves, are more forward-looking."

Tyler Jett covers jobs and the economy for the Register. Contact him at 515-284-8215 and tjett@registermedia.com. Follow him on Twitter @LetsJett.