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Economist: Higher Fuel Prices Slow Midwest Economy

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OMAHA, Neb. (AP) — Soaring gasoline and other fuel prices have pushed an inflation indicator to its highest ever level in a monthly survey in nine Midwestern and Plains states, further slowing the regional economy.

The overall Mid-America business conditions index dropped to 57.7 in April from 61.4 in March. The index remained in positive territory above 50, mainly because higher agricultural commodity prices improved the outlook for firms linked to the farm sector, said Creighton University Economics Professor Ernie Goss, who oversees the survey.

But “we are beginning to see high energy prices cut into economic growth,” Goss said.

The survey of supply managers and executives uses a collection of indexes ranging from zero to 100. Organizers say any score above 50 suggests economic growth in the next three to six months, while a score below 50 suggests a contracting economy.

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

The survey’s prices-paid index, which tracks the cost of raw materials and supplies, soared to 94, a record high, from March’s 88.

“Higher commodity prices, especially for energy products, pushed our inflation gauge to its highest level since we initiated the survey in 1994,” Goss said.

Even with the Federal Reserve’s indication that it will end its buying of long-term U.S. Treasury bonds this summer, Goss said he expects the Fed’s record-low short-term interest rates to continue to weaken the dollar and push inflation upward.

Survey participants were asked last month how their suppliers were dealing with higher energy prices. About 28 percent said their vendors had raised prices permanently, 14 percent reported temporary price increases and 48 percent said supplying firms had added transportation surcharges. The remaining 10 percent reported other supplier reactions, Goss said.

Signaling that inflation will only get worse in the region, about 39 percent of survey participants said they expect vendor prices to increase more than 6 percent over the next six months.

The April employment index dropped to 54 from March’s 60.3. Goss said 16 percent of firms in the region reported employment cuts, compared with 10.7 in March.

Rising gas and energy costs also appeared to shake business leaders’ confident in the economy. The April confidence index, which gauges economic confidence over the next six months, sank to 57.5 from 65.8 in March.

The inventory index declined to 53.7 from 60.9 in March, with Goss blaming business managers’ expectation of higher input prices and slumping sales in the months to come.

The export index stood at a healthy 57.1 compared to March’s 57.5, while the import index dipped to 56.1 from March’s 58.1.

“The cheap dollar and a global economic expansion combined to boost sales and new orders from abroad,” Goss said.

Other components of the April overall index were:

– New orders 59.5, down from March’s 65.7.
— Production or sales index at 59.5, down from 63 the previous month.
— Delivery lead time at 62.0, up from 57.2 in March.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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