As gasoline prices creep toward four-dollars a gallon, a survey of business leaders and supply managers in Iowa and eight other midwestern states finds the regional economy’s health starting to falter. Ernie Goss, an economist at Creighton University, says it’s the second straight month he’s seen a decline in the Business Conditions Index.
“Higher energy prices are beginning to slow the economy down and it’s pulling down our leading economic indicator, so I’m concerned,” Goss says. “If gasoline prices, oil prices continue to grow, we’re going to see some real issues in terms of the overall economy. This may be the first indicator we have that that’s what’s going on.”
Almost half of respondents to the Creighton survey report they’re having to add transportation surcharges to products to deal with escalating costs of gas and diesel. Goss says that means the prices of many items are starting to rise. “Our inflation gauge, which tracks the costs of raw materials and supplies that the supply managers purchase, reached its highest level since we began the survey in 1994,” Goss says.
“That is not good news, certainly on the price front, inflation front.” There was a slackening optimism among survey respondents in Iowa and across the region, Goss says, when they were asked to gaze a half-year into the future. “We asked the supply managers this month to look out six months from now and how much do you expect prices to grow,” Goss says.
“On average, almost 10% growth in the next six months. That’s significantly higher than what we saw in November when we asked the same question.” The weak dollar has been especially good for Iowa’s manufacturing sector, Goss says, especially for producers closely tied to agriculture or international markets. He adds, the weak dollar policy of the Federal Reserve “will continue to bolster Iowa manufacturing and the overall state economy.”