Interest rates, higher energy costs cooling growth

Tuesday, November 1st 2005, 11:22 am

By: News On 6

OMAHA, Neb. (AP) _ For the first time since July, Oklahoma's business conditions index dropped, plummeting more than six points in October, according to a monthly survey of supply managers and business leaders.

But Oklahoma's drop in October to 52.1, down signficantly from September's 58.8, remained in the growth range, Creighton University economics professor Ernie Goss said on Tuesday.

Component readings for Oklahoma include: new orders at 58.5, production at 58.1, delivery lead time at 33.3, inventories at 33.1 and employment at 58.3.

So far this year, Oklahoma has added jobs at about the same rate as the region and nation.

``However, Oklahoma's growth has been much more variable with the manufacturing sector in the state's two large metropolitan areas accounting for the choppy job data,'' Goss said. ``Based on our survey, job growth in the near term for Oklahoma will be somewhat less than that for the region and the nation.''

Across the nine-state Mid-America region, higher interest rates and energy costs cooled growth and lowered confidence in the region's economy, the survey showed.

The region's overall index in the Mid-America Business Conditions Survey was 58.3, down from 59.9 in September, while the confidence index dropped to 45.5 _ its lowest mark since September of 2001.

``Supply disruptions from hurricanes in the Gulf, a jump in energy costs and rising short-term interest rates have certainly played a major role in the decline in confidence among supply managers and business leaders in the region,'' Goss said.

The overall index, called the Business Conditions Index, ranges between 0 and 100. An index number of 50 or higher indicates an expansionary economy over the next three to six months.

The region's prices paid index of 84.3 changed little from 85.9 in September, but still reflected significant inflation at the commodity and wholesale level.

``Because most inflation gauges, such as the prices paid index, show mounting inflationary pressures, I expect the Federal Reserve Open Market Committee to continue raising interest rates at its meeting on November 1,'' Goss said in a news release. The increase would be the 12th since June of last year, he said.

``I also expect the (committee) to raise the funds rate at its December 13th meeting,'' Goss said.

``As I have stated in previous reports, I am concerned that the Fed is overreacting to the sharp upturn in energy prices,'' said Goss, Jack A. MacAllister Chair in Regional Economics and director of the Creighton Economic Forecasting Group.

``There is scant evidence that higher energy prices have spilled over into other nonenergy-related prices,'' he said. ``However, the continued increase in the short-term interest rates will curtail growth in the nine-state region and the U.S. in the months ahead.''

The region's employment index rose slightly last month, to 54.7 from 53.6 in September.

``The gap between hiring among durable goods and nondurable goods manufacturers widened even more as heavy manufacturers reported solid employment gains with an October employment index of 62.7, while nondurable manufacturers detailed static hiring with an October employment reading of 50.7,'' Goss said.

New export orders dropped to 50.0 as the imports index rose to 58.6.

``Data from the Mid-American region mirror those for the nation,'' Goss said.

``Weaker exports, stemming from economic weakness among our trading partners, and rising imports, springing from higher oil prices, have pushed regional and national trade numbers in a bearish direction,'' he said. ``These numbers do not bode well for the trade deficit for the rest of 2005 and for the first quarter of 2006.''

Other figures from October: new orders 59.5; production 61.9; inventories 54.5; and delivery lead time 57.7.

The delivery lead time index figure is the highest since September 2004. The index reflects supply disruptions and has leaped since the Gulf hurricanes.

The Creighton Economic Forecasting Group has conducted the business conditions survey in nine states since 1994: Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.