Survey shows inflation dragging on regional economy in October

Friday, November 2, 2007

The survey's gauge of inflation, the prices-paid index, was pushed up by rising oil prices.

OMAHA, Neb. -- Economic growth slowed dramatically because of inflation in nine Midwestern and Plains states during October, according to a survey of supply managers and business leaders released Thursday.

"Since June, we have been tracking slower growth. However, October's survey produced the first clear signal that the regional economy is dramatically slowing down," said Creighton University economics professor Ernie Goss.

The overall business conditions index for the region fell to its lowest level in almost five years. It sank to 50.1 in October from September's healthy reading of 56.7.

An index greater than 50 indicates an expanding economy over the next three to six months. The Business Conditions Index ranges between 0 and 100.

Goss said he believes the regional economy could slide into a recession early next year if the overall readings from November and December surveys come in below 50.

The nine survey states are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Goss, who oversees the survey, said the slowdown in the regional economy will likely mean a lackluster holiday shopping season for most merchants.

The regional employment index fell to 49.5 in October from September's 53.7. Goss said that is the lowest level since the beginning of the war in Iraq in March 2003.

The survey's gauge of inflation, the prices-paid index, was pushed up by rising oil prices, and the result suggests businesses will be paying more for raw materials and supplies in the coming months. The prices-paid index climbed to 73.4. That is its highest level since June, and higher than September's 71.6.

"We are beginning to see the problems with the national economy bleed into the Mid-America region," Goss said.

The supply managers in the survey weren't very optimistic about the economy in the next six months. The confidence index declined to 47.2, its lowest level since November 2002 and down from September's weak 51.8.

"Despite healthy farm income, the continuing difficulties in the housing sector and the mortgage industry have weakened survey participants' economic outlook," Goss said.

Trade numbers in the region weakened in October. New export orders fell to 50 from September's 56.6. Imports dipped to 54.1 from 60.5 in September.

"Despite the weak dollar, which has made U.S. goods cheaper abroad, new export orders slumped to their lowest level in almost a year," Goss said. "This is another signal of a slowing of the global economy."

Other components of the region's Business Conditions index were:

* New orders at 49.4, down from September's 59.9.

* Production at 51.6, down from 59.3.

* Inventories at 45.6, down from 50.6.

* And delivery lead time at 52.6, down from 54.3.

The Creighton Economic Forecasting Group has conducted the monthly survey since 1994.

The Institute for Supply Management, formerly the Purchasing Management Association, began to formally survey its membership in 1931 to gauge business conditions. The Creighton Economic Forecasting Group uses the same methodology as the national survey.

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