Mid-America economy remains weak in March-survey

NEW YORK, April 1 (Reuters) - Business conditions in nine U.S. Midwest and South-Central states improved slightly in March although the region continued to lose jobs, suggesting economies will struggle further in the months ahead, a survey found on Wednesday.

Creighton University's Business Conditions Index rose to 39.7 in March from 34.6 in February, its highest level since October 2008.

A reading of 50 is considered neutral; a reading above that signifies growth and a reading below signals contraction.

"March's reading points to a deepening recession for the region until the end of the third quarter," said the survey.

The recession "is stacking up to be the most severe downturn in the past 25 years," Creighton University Economics Professor Ernie Goss said in a statement.

The March employment index rose to 34.0 from 33.1 in February. The index hit a record low of 29.0 in January as the broader national recession hit Mid-America.

The region had gained more than 120,000 jobs in the period between the beginning of the national recession in December 2007 and October 2008.

But it shed more than 200,000 jobs between October 2008 and January 2009, and is expected to lose another 220,000 jobs by the end of the third quarter.

The survey's inflation gauge continued to point to deflation at the wholesale level. The prices-paid index, which tracks the cost of raw materials and supplies, rose to 41.1 from 37.7 in February.

On a brighter note, the confidence index, a measure of economic optimism over the next six months, rose to its highest level since January 2007.

The confidence index surged to 58.5 in March from 31.5 in February.

"Our survey was conducted after Treasury Secretary Tim Geithner announced the U.S. Treasury bank plan, but before the GM blowup," Goss said.

"I think economic expectations as expressed by supply managers got ahead of the economic fundamentals."

The survey polls supply managers and business leaders in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. (Reporting by Ciara Linnane; Editing by Jan Paschal)