Midwest Economic Confidence Drops

February survey results from supply managers and business leaders in the Midwest and Plains show rock-bottom confidence in the region's economy.

OMAHA, Neb. (AP) — February survey results from supply managers and business leaders in the Midwest and Plains show rock-bottom confidence in the region's economy.
 
North Dakota, however, continues to benefit from the weak U.S. dollar, the report says.
 
The confidence index in the Mid-America Business Conditions survey for February dropped another percentage point, to 37.8 from 38.8 in January.
 
''This is the lowest confidence index that we have recorded since 2000, or shortly before the March 2001 recession began,'' said economics professor Ernie Goss of Creighton University, who oversees the survey.
 
''Despite record farm income for much of the region, higher energy prices and the spillover from the national economic downturn have weakened survey participants' economic outlook,'' Goss said as he released the survey Monday.
 
The overall index for the nine-state region dropped below 50.0 for the second time in the past four months, to 49.5 from a weak 50.6 in January.
 
The index ranges between zero and 100, and an index greater than 50 indicating growth.
 
North Dakota's overall index was the highest in the nine-state region for the third straight month, at 73.7, the report said.
 
''Sharing a border has been an important economic stimulus for North Dakota for 2007,'' Goss said. ''The weak U.S. dollar will help push North Dakota export of goods to Canada to $1.3 billion.''
 
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 to 88.8 in February, compared with 79.9 in January and 78.4 in December.
 
''While Federal Reserve Chairman (Ben) Bernanke has downplayed the probability of a combination of excessive inflationary pressures and negative growth, the likelihood of such an outcome is clearly rising according to our survey,'' Goss said.
 
The Federal Reserve interest rate-setting committee meets again on March 18.
 
''At this time, the Fed is more concerned about the economic slowdown than inflation,'' Goss said. ''Thus, I expect the Fed to cut short-term rates by a quarter percent rather than an aggressive half-percent. ...
 
''Furthermore, due to excessive inflationary pressures for 2008, the Fed will not be able to repeat its aggressive 2001 rate reductions,'' Goss said.
 
More signs of an economic slowdown could be found in the survey's employment index, which remained below growth-neutral 50 for another month. It hit 48.9, which was 2.1 percentage points higher than January's 46.8 — the lowest reading in more than five years.
 
Said Goss: ''I expect the overall region to continue to lose jobs until the middle of 2008, though several states will actually be increasing employment levels for all of 2008.''
 
The cheaper U.S. dollar made U.S. goods less expensive abroad, which helped raise the survey's index for new export orders. It hit 56.3 in February, up considerably from 48.6 in January.
 
But, Goss said, the weak dollar has also raised the prices of imported goods such as oil, adding to inflationary pressures.
 
Other components of February's overall index were:
  • new orders at 44.6, down from 52.3 in January;
  • production at 51.1, up six-tenths of a point from last month;
  • inventories at 53.2, a big jump from 46.8 last month;
  • and delivery lead time at 54.7, compared with 52.8 in January.
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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