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Published November 01, 2011, 10:04 AM

Regional economic survey takes 1st downward turn in nearly 2 years

North Dakota provided regional high
Creighton University economics professor Ernie Goss says one reading slightly below a growth-neutral 50 doesn't signal a recession. But Goss says the October figure is evidence that the weakness in the national economy has hit the regional economy.

By: Associated Press,

OMAHA, Neb. — For the first time in nearly two years, the overall Business Conditions Index for a nine-state region of the Midwest and Plains has taken a negative turn.

A report released this morning on the survey of supply managers and executives said the index dropped to 49.9 in October, from 52.2 in September.

The survey uses a collection of indexes ranging from zero to 100. Organizers have said that any survey score above 50 suggests growth while a score below 50 suggests decline for that factor.

Creighton University economics professor Ernie Goss, who oversees the survey, said one reading slightly below a growth-neutral 50 doesn't signal a recession.

"But if the index continues to weaken in the months ahead, the likelihood of a return to recessionary economic conditions becomes a real possibility for 2012," said Goss, who heads the university's Economic Forecasting Group. "It is evident that the weakness in the national economy has now hit the regional economy," he said.

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

One of the brighter spots in the survey was the confidence index, which looks six months ahead. It rose to a still weak 49.5 in October from 40.5 in September.

The prices-paid index, which tracks the cost of raw materials and supplies, dropped to 56 from September's 66.3.

"This is the lowest reading for our inflation gauge that we have recorded since June 2009, the last month of the recession," Goss said. "Lower inflation in the pipeline will give the Federal Reserve more flexibility to further stimulate the economy."

Other components of the October index:

— New orders dropped to 45.4 from 49.6 in September.

— Production or sales dropped to 48.5 from 50.4.

— Employment dipped to 49 from 49.6.

— Trade rose to 48 from 45.5.

The Institute for Supply Management, formerly the Purchasing Management Association, began formally surveying its membership in 1931 to gauge business conditions.

The Creighton Economic Forecasting Group uses the same methodology as the national survey to consult supply managers and business leaders. Creighton University economics professor Ernie Goss oversees the report.

The overall index ranges between 0 and 100. Growth neutral is 50, and a figure greater than 50 indicates an expanding economy over the next three to six months.

Here are the state-by-state results of the October survey in the Mid-America region:

Arkansas: For the fifth time in the past six months, Arkansas' overall index has dropped. The October index plummeted to 52.7 from September's 60.4. Components of the index were new orders at 55.5, production or sales at 53.7, delivery lead time at 62.4, inventories at 53.9 and employment at 38.1. "Rising agricultural prices have been a burden on the profitability and business conditions of the state's large food-processing industry," Goss said. "The recently passed trade pacts, once implemented, will be important sources of long-term Arkansas growth. However, over the next three to six months, I expect Arkansas to continue to lose jobs, albeit at a very slow pace," he said.

Iowa: The October overall index remained above growth neutral for the 22nd straight month. The index dipped to 55.4 from 57.8 in September. Components of the index were new orders at 54.8, production or sales at 53.0, delivery lead time at 60.6, employment at 57.7 and inventories at 50.6. "Strong growth in agricultural machinery production is spilling over into other sectors, such as metal product manufacturing," Goss said. "Based on our survey results over the past several months, Iowa will continue to add jobs, albeit at a slow pace, in the next three to six months," he said.

Kansas: The state's overall index rose to 47.9 in October from September's regional low of 43.8. The survey from supply managers in the state is pointing to job losses for the state's economy in the months ahead. Components of the index were new orders at 43.8, production or sales at 40.6, delivery lead time at 58.6, employment at 47.1 and inventories at 49.4. Growth among manufacturers continues to slow with the state's large aeronautics manufacturing industry experiencing a drop in economic activity. Goss said U.S. and global economic weakness will continue to weigh on the Kansas economy, with slight job losses in the next three to six months.

Minnesota: The state's overall index remained above growth neutral for the 27th straight month. It hit 55.4 in October, only slightly above the 55.3 in September. Components of the index were new orders at 49.9, production or sales at 55.6, delivery lead time at 61.9, inventories at 55.6 and employment at 54.2. Growth among durable-goods producers is outpacing that of nondurable-goods manufacturers. Goss said. "For example, higher agricultural commodity prices have reduced economic activity in the state's large food-processing sector while health care expansions have pushed medical equipment manufacturers in the state to higher growth and profitability," he said. "Growth will continue to be positive, with jobs added at a slow pace over the next three to six months."

Missouri: The overall index dipped to a regional low of 47.3 in October, compared with September's regional low of 47.9. The index points to economic weakness and job losses in the months ahead. Components of the index were new orders at 44.6, production or sales at 45.5, delivery lead time at 53.9, inventories at 47.6 and employment at 45.0. Weakness among nondurable-goods manufacturers, such as food processors, more than offset growth for durable-goods producers, Goss said. "Based on surveys over the past several months, I expect the state's unemployment rate to rise slightly over the course of the next three to six months," he said.

Nebraska: The state's overall index remained above growth neutral for the 12th straight month, but it dropped to 54.3 from 57.4 in September. Components of the October index were new orders at 51.0, production or sales at 56.2, delivery lead time at 57.6, inventories at 54.7 and employment at 52.1. "Both durable- and nondurable-goods producers in the state reported solid upturns in business activity. Agricultural equipment manufacturers are detailing healthy business activity," Goss said. "Strength in exports and agriculture will continue to push job growth into positive territory for the next three to six months," he said.

North Dakota: North Dakota's overall index rose to a regional high of 57.2 from 56.1 in September. Components of the index for October were new orders at 62.6, production or sales at 58.0, delivery lead time at 62.4, employment at 53.8 and inventories at 49.2. "Growth in North Dakota continues to significantly outpace that of the nation and region. Rapid growth in the state's energy and agricultural sectors is spilling over into the rest of the state's economy," Goss said. "Only a significant upturn in the value of the U.S. dollar, which I do not expect, could derail this growth. A higher valued U.S. dollar would tend to push energy and farm commodity prices lower," he said.

Oklahoma: The state's overall index dropped in October to 53.9 from 54.1 in September. Components of the index were new orders at 56.0, production or sales at 53.6, delivery lead time at 67.3, inventories at 45.7 and employment at 58.9. "Over the past several months, only Oklahoma has matched North Dakota in terms of consistent economic growth and job gains. Only a significant upturn in the value of the dollar, which would push agricultural and energy prices down, could derail Oklahoma's expansion. Even so, growth will be modest for the next three to six months," Goss said.

South Dakota: South Dakota's overall index plunged to 52.6 in October, compared with 59.3 in September. Components of the index were new orders at 45.3, production or sales at 48.0, delivery lead time at 55.1, inventories at 51.9 and employment at a regional high of 63.0. "Manufacturers tied to international markets, agriculture and energy continue to experience very positive growth," Goss said. Over the past year, the growth in manufacturing jobs has exceeded 4 percent, he said, well above the nation and the region. "I expect positive but slow job growth for the overall state economy for the next three to six months," Goss said.

Online

Creighton Economic Forecasting Group: http://www.outlook-economic.com

Copyright 2011 The Associated Press.

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