Mid-America economy hit by energy prices, housing

CHICAGO Thu Nov 1, 2007 11:22am EDT

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CHICAGO Nov 1 (Reuters) - An index of business activity in parts of the U.S. Midwest and south-central regions fell to its lowest in almost five years in October, hit by rising energy prices and the housing industry downturn.

Creighton University's nine-state survey, the Business Conditions Index, dropped to 50.1 from 56.7 in September.

"Since June, we have been tracking slower growth," said Ernie Goss, economics professor at the Omaha, Nebraska university, in a statement. "However, October's survey produced the first clear signal that the regional economy is dramatically slowing down."

Goss forecast a recession in early 2008 if the survey's readings for November and December move below 50.

The index ranges between 0 and 100. A reading above 50 indicates an expansionary economy over the next three to six months.

The university's prices-paid index, which tracks the cost of raw materials and supplies, rose to 73.4 last month, its highest level since June. The inflationary gauge was up from 71.6 in September, reflecting higher oil prices, the survey said.

The employment index fell to 49.5 in October from 53.7 in September. The downturn in housing coupled with higher oil prices have begun to take a toll on job creation in the region, according to Goss.

Looking ahead six months, supply managers' economic optimism, captured by the confidence index, fell to 47.2 from 51.8, its lowest level since November 2002.

"Despite healthy farm income, the continuing difficulties in the housing sector and the mortgage industry have weakened survey participants' economic outlook," Goss said. "We are beginning to see the problems with the national economy bleed into the Mid-America region, affecting the business outlook."

The Creighton Economic Forecasting Group has conducted the monthly survey since 1994 using the same methodology as the national Institute for Supply Management.

States in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. Supply managers and business leaders were surveyed in the nine-state region.

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