Report: Midwest Expects Gloomy Economic Outlook

Survey of Midwest and Plains supply managers suggests they are dour about the regional economy over the next six months, as the confidence index falls to record low of 22.8.

OMAHA, Neb. (AP) -- A survey of Midwest and Plains supply managers from nine states suggests they are dour about the regional economy.

In the report on the Mid-America Business Conditions survey issued Monday, the overall economic index plummeted to 39.9 in October from 49.6 in September and 51.4 in August.

Any score below 50 on the index, which ranges between 0 and 100, indicates a contracting economy over the next three to six months.

"In the 14 years that we have conducted the monthly survey, October's was the weakest ever," said Creighton University economics professor Ernie Goss, who oversees the survey. "The regional economy is now in a recession, and I expect the downturn to deepen in the months ahead."

The survey respondents were pessimistic about recovery as well.

The survey's confidence index plunged to a record low of 22.8 last month from an already gloomy 38.4 in September.

"Except for August, the business confidence index has been below 40.0 all year, reflecting an economic outlook significantly lower than at any time since we began the survey in 1994," Goss said. "It is clear that the national credit crisis and stock market plunge are having what I consider to be an overly pessimistic view of the economy. Surveys over the past several months are pointing to a recession, and survey participants are expecting a severe recession with significant job losses."

States in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The survey's employment index inched upward to 47.4 from 47.0 in September.

"The regional job market has not been good for 2008," Goss said. "However, with less and less support from exports and fallout from the national credit crunch, I expect even more job losses and rising unemployment well into 2009. The question is no longer whether we are in a recession, but how long will it last."

The survey's inflation gauge dove to 61.6 in October from 84.0 in September. It tracks the cost of raw materials and supplies.

Goss said the 61.6 was the lowest prices-paid index the survey has recorded in more than three years and that it reflects the national and global economic downturn and the strengthening dollar.

"When the Federal Reserve's rate-setting committee meets again Dec. 16, I expect it to make no changes to the funds rate," Goss said. "I do expect the Fed to continue its policy of pouring sufficient liquidity into the system to keep actual or effective short-term rates very low through the first half of 2009."

Although exports stimulated regional economies the first part of 2008, Goss said, for a second straight month the index for new export orders dropped, this time to a record low of 39.4 from September's 50.6.

Also for a second straight month, imports hit a record low in the survey: 39.9 in October, compared with 43.8 the month before.

Other components of October's Business Conditions Index:

-- new orders at 32.8, down from September's 46.6;

-- production at 38.1, down from 51.5;

-- inventories at 47.4, down from 52.3;

-- and delivery lead time at 52.2, 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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