Midwest's economy appears to be slipping

The nation's purchasing managers reported a significant dip in September's business conditions as the stresses of the mortgage, energy and Wall Street crises took their toll, according to two surveys released Wednesday.

The Institute for Supply Management (ISM) and Creighton University released the results. The ISM business index fell from 49.9 in August to 43.5 in September. Creighton's nine-state Mid-America Business Conditions Index fell from 51.4 in August to 49.6. Any index below 50 signals economic contraction.

Creighton's index covers Minnesota, Iowa, Arkansas, North Dakota, South Dakota, Kansas, Missouri, Oklahoma and Nebraska.

"I expect regional GDP [gross domestic product] growth for the final quarter of 2008 to be negative," said survey author Ernie Goss, a Creighton economics professor.

Business conditions in Minnesota fell "below neutral" for the sixth month this year as new orders, production and employment suffered and inventories expanded slightly.

"There were certainly more negative reports than positive for September" in Minnesota, Goss said.

"Upturns by automobile-parts producers and telecommunications firms were more than offset by pullbacks reported by nondurable goods producers," he said. "Minnesota continues to be affected more by the negatives in the national economy than the rest of the region."

Looking ahead, many Midwest survey respondents were not optimistic. Goss' Mid-America confidence index "nose-dived to 38.4 from 50.0 in August," he said.

On the national front, manufacturers reported the lowest levels of production since 2001, said Norbert Ore, chairman of ISM's manufacturers survey committee.

Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said the group's September index represents "a sudden and substantial decline."

"The manufacturing industry has been in recession since October of 2007 and has seen moderate declines in production until recently," Meckstroth said. "A broad-based and deep fall in the September report indicates that the energy shock, housing collapse and financial crisis has reached a point where the recession has spread to the general economy."

Meckstroth does not expect any recovery until mid-2009. While last spring's federal economic-stimulus checks provided temporary relief, they "did nothing to correct the underlying problem of over-indebted households, falling housing stocks, stock market prices and an overleveraged financial system," he said.

"There is no way that this part of the country can continue to avoid the fallout from the national housing downturn and related mortgage issues," Goss said. "Banks in this part of the country, while not engaging in the reckless activity seen elsewhere in the country, will bear some of the costs in the months ahead."