Rebound, inflation appear likely for Midwest

Tuesday, June 4, 2002

OMAHA, Neb. -- While the economic rebound appears to be in place for the Midwest, inflation is close on its heels, according to a survey of company officials in a nine-state region released Monday.

The economy in the region improved for a fourth straight month, with the survey's overall growth index for May hitting its highest level since April 2000.

The region's economic index increased to 57.9 in May from 57.5 the month before, a true sign of a rebound in the region's economy, said Ernie Goss, a Creighton University economics professor who conducts the monthly survey. An index of above 50 signifies economic growth, while a figure below 50 indicates a sluggish economy.

However, any rebound has not yet produced an upturn in the job market, Goss said. The May employment index of 48.3 -- a drop from April's 50.2 -- confirms that employers shed jobs last month. However, Goss said he expects new orders and production increases in May to translate into job gains in the coming months.

There also is a concern of increasing inflation, he said.

Purchasing managers and business leaders surveyed said their companies paid more for materials and products in May than anytime since February 2001, indicating inflation, Goss said.

Higher commodity prices, particularly for steel products, are forcing price increases for supplies and materials bought by firms in the region.

"While I don't expect the Federal Reserve to raise interest rates at its June meetings in response to heightened inflation pressures, I believe it should and will have to take action by August at the latest," Goss said.

Export orders up

The survey showed a significant increase in export orders, with a May index reading of 52.6 -- the first time in 25 months that the index has climbed above 50. While that's good news for companies in the region that sell overseas, it's primarily the result of a weakening value of the dollar, Goss said.

The business confidence index was down slightly in May, but remained strong at 76.5 compared to April's 77.4, showing supply managers and business leaders remained optimistic about the region's economic conditions six to nine months out.

Goss surveys purchasing managers and business leaders in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

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