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Survey suggests Midwest in position to grow

Tuesday, March 2, 2010

OMAHA, Neb. -- A survey released Monday of business leaders and supply managers in nine Midwest and Plains states suggests the region's economy is set to grow in the coming months, but that there are also signs of inflation.

The Business Conditions Index for the Mid-America region jumped to 61 in February, up from 54.7 in January and 50.3 in December.

The index ranges from zero to 100. Any score above 50 suggests economic growth in the next three to six months. Conversely, a score below 50 suggests a contracting economy in the coming months.

The regional employment index for February was 56.1, up from January's 51.7 and December's 47.6. It was the second straight month that the regional employment index rose above 50.

Looking ahead six months, the February confidence index climbed to 73, up from January's 68.5 and December's 69.5.

Creighton University economist Ernie Goss, who oversees the survey, said that while he's encouraged by the most recent figures, he's concerned about economic problems in Europe that are pushing the value of the dollar higher.

"This part of the nation depends heavily on agriculture, which likewise suffers from a 'too strong' dollar," Goss said. "... I continue to expect job growth to be subdued, especially for rural areas of the nine-state region."

The Mid-America survey covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The prices-paid index, which tracks the cost of raw materials and supplies, jumped again, moving to 78.3 in February, up from January's 75.5 and December's 65.2. The index has more than doubled over the last year, Goss noted.

Goss said supply managers were asked in February how much they expected prices for products they purchase to change in the next six months. Almost three in ten supply managers expected prices to rise by more than 5 percent in the next six months, compared with only 1 percent who expected prices to drop.

Based on the supply managers' responses and his own analysis, Goss said he expects the Federal Reserve to raise the funds rate by 0.25 percent before the end of the second quarter of this year.

"Inflation in the pipeline is well above the Fed's soft target of 2 percent, in my judgment," Goss said.

Trade numbers were mixed. New export orders dropped to 55.4, from 55.8 in January, while imports rose to 58.8, from 50 in January.

"Exports will be an important component of any significant 2010 economic rebound," Goss said.

Other components of January's overall index:

* Inventory rose to 57.4, from 48.3 in January.

* New orders increased to 66.1, from 57.4 in January.

* Production or sales increased to 67.3, from 57.9 in January.

* Delivery lead time was unchanged from January, at 58.4.


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