A key index for Minnesota's manufacturing sector slumped for a third consecutive month in February.

Minnesota's Business Conditions Index showed a drop in orders, production, inventories and employment, according to a report released Monday by Creighton University.

February's Business Conditions Index fell to 44.3 from 46.2 in January. A reading below 50 signals contraction.

Minnesota's survey revealed indices for new orders at 41.2, production at 43.0, delivery lead time at 52.9, inventories at 48.0, and employment at 42.2. Those levels generally mimicked readings across the Midwest.

While overall product orders were down, the survey found one good result for Minnesota -- exports, which continued to rise as foreign companies and consumers took advantage of the falling U.S. dollar in February. Researchers said they expect exports to continue rising and for Minnesota goods shipped to Canada to reach $5.5 billion this year, up from $3.6 billion as recently as 2006.

In the Midwest, the Creighton survey of supply managers and business leaders from nine states found job losses on the rise and inflationary pressures at their highest level in 13 years because of jumps in oil and raw materials prices.

"While Federal Reserve Chairman Bernanke has downplayed the probability of a combination of excessive inflationary pressures and negative growth, the likelihood of such an outcome is clearly rising, according to our survey," said Creighton Economics professor and survey author Ernie Goss.

"We are tracking an economy that is experiencing job losses with significantly elevated inflationary pressures in the economic pipeline," Goss said. "I expect the overall region to continue to lose jobs until the middle of 2008."

Surveyed supply managers from Minnesota, Iowa, South Dakota, North Dakota, Nebraska, Arkansas, Kansas, Oklahoma and Missouri reported the lowest economic confidence levels seen since 2000.

The confidence index fell to 37.8 in February from 38.8 in January.

The Institute for Supply Management (ISM) issued a separate report Monday on the national economy that showed the manufacturing sector failed to grow in February, despite growth reported for the overall economy.

The national manufacturing sector index fell from 50.7 in January to 48.3 in February as order backlogs continue to erode. Survey respondents showed "major concern" about rising prices and falling order volumes, said Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee. Prices of metals and plastics continue to climb, survey respondents complained.

Goss said he expects the Federal Reserve, which meets later this month, to cut short-term interest rates again, but only by a quarter percentage point. That compares to the reductions of three quarters of a percentage point and the half percentage point in January.

"Furthermore, due to excessive inflationary pressures for 2008, the Fed will not be able to repeat its aggressive 2001 rate reductions," he said.

Dee DePass • 612-673-7725