Midwest survey suggests some recession fears

More than a third of supply managers in nine Midwest and Plains states surveyed for a regional business index expect the U.S. economy to fall into another recession next year, even as key measures of the index remained positive.

As part of the monthly Mid-America survey released Wednesday, supply managers were asked their expectations, and 35 percent said it was likely or very likely that it would move back into recession in 2011. Only 21 percent indicated it was unlikely or very unlikely. The remainder said there was a 50 percent chance.

August's overall economic index dropped from 60.8 in July to August's 55.8 - the report's lowest level since January, though still in positive territory. The August jobs index dropped to 55.2 from 58.8 in July, which also remains above growth-neutral.

The report uses a collection of indexes ranging from zero to 100. 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.

"These results are very similar to what we recorded coming out of the 2001 recession," said Creighton University economics professor Ernie Goss, who oversees the report. "Of course, the big difference is that tax cuts were passed in 2001 and 2003. At this point in time, Americans are staring at a significant tax increase on Jan. 1, 2011.

"Even so, our surveys are pointing to much slower growth at this time, not a double-dip recession," Goss said.

The survey's business confidence index, which gauges the economic outlook of survey participants for the next six months. That index dipped to 52.4 in August from July's 54.8 and June's 59.4.

"This is the lowest confidence index that we have recorded since January 2009, and the fourth straight month that the confidence has declined," Goss said.

The prices-paid index, which tracks the cost of raw materials and supplies, rose slightly to 64.6 from July's 64.1.

"Based on our survey results, as well as other surveys of supply managers, I still think fears of deflation are overblown," Goss said. "Once the economy gets back on track, inflation and price bubbles will be the problem, not deflation."

Other components of the August overall index:

- New orders at 53.6, up from July's 53.1;

- Production or sales at 56.5, down from 58 in July;

- Delivery lead time at 61.7, down from July's 78.7.

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