Economist Says Midwest Economy Has Hit Bottom

OMAHA, Neb. (AP) -- A survey of supply managers and other business executives in nine Midwest and Plains states suggests that the regional economy has bottomed out.

The Mid-America Business Conditions index rose to 46.6 in May, compared with 42.7 in April and 39.7 in March.

It was the index's fifth straight monthly increase.

The survey's index ranges between 0 and 100, and any score below 50 on the index suggests a contracting economy over the next three to six months.

Creighton University economics professor Ernie Goss said in a survey report issued Monday that the past few months' readings indicate the regional economy has hit bottom.

"However, little in the May survey points to an economic turnaround in the next three to six months," said Goss, who oversees the survey.

The survey suggests the regional slowdown will continue at least until the end of the third quarter of 2009, he said.

"I continue to expect the Mid-America economy to be out of a recession by the end of the fourth quarter of this year," Goss said.

The survey states are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Looking ahead six months, economic optimism in May hit its highest level since February 2005. The index rose to 65.9 from 61.4 in April -- far above last November's record low of 22.4.

"Very low interest rates, both short term and long term, and the federal stimulus package have clearly buoyed the economic outlook of supply managers in the Mid-America region," Goss said. "Even the Chrysler bankruptcy and the impending GM bankruptcy have failed to derail economic optimism."

The May index on employment declined to 40.5 in May from 41.4 in April.

Although the regional economy has bottomed out, Goss said, he expects more jobs to be lost.

And, "even as the regional economy moves out of recession territory, I do not expect job gains of any significance until well into 2010," he said.

The survey's prices-paid index, which tracks the cost of raw materials and supplies, rose to 39.3 in May from 34.2 in April.

"As the economy has moved off the depths experienced earlier in the year, cuts in input prices have likewise moderated a bit," Goss said. "Even so, these price trends, which match those at the national level, allow the Federal Reserve to maintain its aggressive interest-rate policies with little fear of inflation in the near term."

But, he said, he expects the Fed to raise short-term rates before the end of 2009.

"This is a terrific time to borrow for businesses and individuals with solid credit scores," Goss said.

The region's trade numbers were not encouraging, he said.

New-export orders rose to 44.9 in May from 42.4 in April. The import index rose to 48.2, compared with 44 in April.

Other components of May's overall index were:

-- new orders at 55.1, up from 43.0 in April;

-- production at 51.0, up from 42.8;

-- and delivery lead time at 46.8, down from 50.0.

Goss and the Creighton Economic Forecasting Group have 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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