FSU Valley Economic Index falls for August

Tariffs having impact

The San Joaquin Valley Business Conditions Index fell in August, but remains above growth neutral for the 24th consecutive month and pointing to healthy growth in the next three to six months.

The August index was at 55.1, falling from July’s 57.5. An index greater than 50 indicates an expansionary economy.

The index is a leading economic indicator from a survey of individuals making company purchasing decisions for firms in the counties of Fresno, Kings, Madera and Tulare. The index is produced using the same methodology as that of the national Institute for Supply Management.

“Both durable and non-durable goods manufacturing reported solid gains for the month,” said Dr. Ernie Goss, research faculty with the Craig School of Business at Fresno State. “As in recent months, construction activity in the San Joaquin Valley continued to expand at a very healthy pace. I expect this pace to remain strong for the next three to six months.”

Last month, survey participants were asked how tariffs were affecting their business operations. Approximately, one-fourth of the firms reported that tariffs and trade battles were having negative impacts on sales to, and purchases from, abroad. Despite this negative fallout from tariffs, six of 10 businesses supported either raising tariffs, or 61.9 percent, support either raising tariffs or leaving current China trade tariffs in place.

Employment

The employment gauge moved lower to 55.0 from 57.5 in July.

“The San Joaquin region has experienced strong job growth at 2.7 percent over the past year, or significantly above the nation’s 1.6 percent expansion over the same period of time. I expect the region to continue to add jobs, but at a somewhat slower pace for the next three to six months,” Goss said.

Wholesale prices

The prices-paid index, which tracks

the cost of purchased raw materials and supplies, slipped to 67.6 from July's 68.6 indicating elevated inflationary pressures at the wholesale level. “I expect rising tariffs, and trade restrictions to continue to boost wholesale and consumer inflation growth above the Federal Reserve's target. This trend has already pushed consumer inflation higher. As a result, in my judgment, the Federal Reserve's interest rate setting committee will raise short-term interest rates by one-quarter of one percentage point (25 basis points) no later than Sept. 26,” Goss said. Business confidence Looking ahead six months, economic optimism, as captured by the business confidence index, fell to a healthy 62.5 from July's 65.5. “Healthy profit growth and still low interest rates boosted business confidence. However, I expect rising tariffs and trade restriction to shrink business confidence in the months ahead,” Goss said.

Inventories The inventory index once again fell below growth neutral for August. The index, which reflects the growth or decline in raw materials and supplies, fell to 45.3 from

47.2 in July.

Trade The new export orders index fell to 49.9 from July's 55.4, while the import index sank to 44.9 from 49.8 in July. “Almost one in four businesses, or 23.8 percent, indicated that tariffs and trade battles were having negative impacts on sales to, and purchases from, abroad,” Goss said. Other components Other components of the August Business Conditions Index were: new orders at 59.5, down from 63.7 in July; production or sales at 61.3, down from July's 65.1; and delivery lead time at 54.5 up slightly from last month's 54.1.