Inflation continues to drag on regional economy

Monday, February 4, 2008

OMAHA, Neb. -- For the fourth month in a row, wholesale inflation increased in nine Midwestern and Plains states, slowing economic growth to a crawl in January, according to a survey of supply managers and business leaders released Friday.

"December's upturn now appears to be an aberration," Creighton University economics professor Ernie Goss said. "Over the past four months, there has been a clear downturn in the region's index, indicating that the region's growth will be zero or slightly negative for the first half of 2008."

The overall business conditions index fell to 50.6 in January from December's 55.0. The index ranges between 0 and 100, and an index greater than 50 indicating an expanding economy over the next three to six months.

Goss compiles survey information from supply managers and business leaders in the nine-state Mid-America region. The states are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The report's inflation measure, which tracks the cost of raw materials and supplies, increased from 78.4 in December to 79.9 in January. The rising costs of oil and commodities drove the inflation.

The employment index fell to 46.8 -- its lowest figure in more than five years. Goss said the region will likely lose jobs in the first half of 2008 before growing again in the second half of the year.

The region has lost roughly 20,000 jobs since August, said Goss, who oversees the survey.

And the supply managers did not express much confidence in the economy over the next six months. The survey's confidence index fell to 38.8 in January from December's already weak 45.9.

"This is the lowest confidence index that we have recorded since December 2000, or shortly before the March 2001 recession began," Goss said.

Much of the region continues to enjoy record farm income, but Goss said the ongoing difficulties in the housing sector and credit markets nationwide have begun to affect the region.

Trade numbers also weakened in January. New export orders fell to 48.6 from December's 65.4. Imports dropped to 49.4 in January from 57.0 in December.

"We may be seeing the first signs of a global economic slowdown," Goss said. "Even the weak dollar, which has made U.S. goods cheaper abroad, failed to stimulate export orders."

Other components of January's overall index were:

* New orders at 52.3, down from December's 56.9.

* Production at 50.5, down from 56.8.

* Inventories at 46.8, down from 53.4.

* Delivery lead time at 52.8, up from 50.7.

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.

Missouri's overall index dropped below growth neutral for the first time in six years, to 49.3, its lowest level since January 2002. The December figure was a healthy 58.1. Components of the overall index were new orders at 51.5, production at 50.3, delivery lead time at 49.4, inventories at 42.1 and employment at 48.1.

"Over the past year, Missouri's unemployment rate has risen by 0.7 percent," Goss said. "I expect the state's jobless rate to rise slightly in the months ahead but to stabilize by midyear. Nondurable-goods manufacturers, particularly foods processors, are reporting reduced economic activity."

Respond to this story

Posting a comment requires free registration: