Soaring energy prices, lower inflation and flooding along the Missouri River sent long-term confidence and a regional economic indicator into a downward spiral in June.
For the third time in the last four months, the Business Conditions Index dropped. During June, the nine-state Midwest region that includes Nebraska and Iowa scored an index of 54.9, compared with 60.2 in May. A score of 50 is considered growth- neutral and anything above that indicates economic growth.
According to the survey of supply managers released Friday, employment levels declined along with long-term confidence. Looking ahead six months, optimism in the economy plummeted to 52.3 from 60.4 in May. Additionally, about one-fourth of the supply managers said they had flooding- and weather-related supply disruptions during the month.
“Energy prices combined with uncertainty surrounding the national economy and United States debt situation served to puncture business confidence for the month,” Creighton University economist Ernie Goss said.
Goss said there was at least one supply manager who said production had been curtailed at more than one of the manager's facilities, prompting the closure of some operations.
Another supply manager said his company was stockpiling inventory so that it can continue to service customers in areas affected by flooding, Goss said.
Nebraska's overall index dipped to 56 in June from 57.7 in May. Iowa's index remained higher than Nebraska's, but lower than the previous month, scoring 61.4 in June, compared with 65.6 in May.
Goss said he expects Nebraska to add about 20,000 jobs and Iowa to grow employment by 23,000 positions by the end of 2011.
In recent months, inflation has helped buoy the agriculture-rich Midwest, but inflation cooled in June as the value of the U.S. dollar recovered somewhat, Goss said.
That trend isn't expected to continue, he said. “I expect the dollar to continue to weaken in the final quarter for 2011 due to the Federal Reserve's low interest rate policies, large U.S. trade deficits and the strengthening of the Chinese yuan against the dollar.”
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