December 14, 2015 / 11:53 PM / 4 years ago

Economic pain in U.S. heartland as likely Fed hike nears

CHICAGO (Reuters) - America’s heartland, the vast area in the middle of the country that produces much of the nation’s food and energy and is home to many of its traditional manufacturers, is sending warning signals that all is not well with the economy.

The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque

From agriculture to heavy equipment and small business lending, farmers, manufacturers and transport companies that serve them are taking hits from a stronger dollar or plunging prices for farm commodities and oil.

Industry executives worry that the expected move by the U.S. Federal Reserve to raise interest rates on Wednesday - which would be the first hike in a decade - could put more jobs at risk.

“Many of the companies that we do business with are hurting and some have already gone away,” said Bill Hickey, president of Chicago-based steel company Lapham-Hickey Steel, which has seven mills across the country and supplies processed steel to car makers and construction firms. He worries banks could start cutting off credit to troubled industrial companies.

The Thomson Reuters/PayNet Small Business Lending Index fell 5 percent in October from the previous month and was flat on the year, marking only the second time it had failed to rise since February 2010.

Weakness in the manufacturing, farm and transport sectors likely will not deter a rate increase by the Fed, economists say.

There is “no doubt that manufacturing weakness is costing growth,” said Harm Bandholz, chief U.S. economist at UniCredit Research. However, the sector only accounts for about 12 percent of the U.S. economy and some areas like automotive are performing well.

“You can’t say that everything is perfect,” he said. “But the United States is not doing so bad anymore that we need zero-percent interest rates.”

The downbeat indicators from heartland industries illustrate the economy’s lumpiness.

Preliminary data show that November U.S. orders for heavy, over-the-road trucks fell 59 percent from a year earlier - the worst November since 2009, according to transportation analysis firm FTR.

Freight at the U.S. major railroads was off 1.9 percent for the year through Dec. 5. Coal accounts for much of the decline. But shipments of consumer goods by container - or intermodal shipments - were only up 1.6 percent.

“The numbers are as bad as I’ve seen them,” said Anthony Hatch, an independent railroad analyst.

Farmers are under pressure from declining crop prices and weak demand. U.S. farm incomes are expected to drop 38 percent for all of 2015, the steepest year-on-year drop since 1983. Nathan Kauffman, an economist with the Kansas City Fed, said higher rates would create “the potential for more financial stress.”

Detroit’s automakers are having a boom year, but manufacturers dependent on commodity markets, such as mining and construction equipment maker Caterpillar Inc and farm equipment manufacturer Deere & Co, are cutting jobs and warning of weak sales into 2016.

The Institute for Supply Management’s purchasing managers’ index for manufacturers hit 48.6 percent in November. Any number below 50 generally shows manufacturing is contracting.

Reporting By Nick Carey and Tom Polansek; Writing by Nick Carey; Editing by Bill Rigby

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