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Archive for Wednesday, September 4, 2002

Drought slows business in Midwest

September 4, 2002

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— A severe drought is hurting business in the Midwest, including Kansas, an economist said Tuesday.

"While I don't expect a double-dip recession, it is clear that the probability of a significant slowdown is rising," Ernie Goss of Creighton University said.

Goss conducts a nine-state monthly survey of manufacturing supply managers and business leaders that showed the overall index declining for the third-straight month in August, to 51.1 from July's 53.9.

"Drought conditions in Kansas, North Dakota, Nebraska and South Dakota pushed August's overall index down," Goss said. "While we don't survey the agriculture industry, the drought is clearly having an impact on businesses that serve the agriculture sector."

With an index ranging between 0 and 100, numbers below 50 indicate contraction in manufacturing and numbers greater than 50 indicate expansion.

The survey of Kansas supply managers and business leaders dropped below growth neutral for the first time since April of this year. The overall reading for August stood at 47.0, down from July's 51.6. Particular weakness was reported in Kansas' large durable goods manufacturing sector. August readings for new orders of 43.5, production of 45.7 and employment of 45.7 were all down from July numbers.

"While August's overall index is certainly of concern, at this point in time, I expect Kansas to experience slow growth in the months to come. However, if the current downward trend continues, there is certainly the possibility that the Kansas economy will move back into negative growth territory," Goss said.

"Many firms with links to agriculture have reported over the past two months that the drought is having a negative impact on their businesses," Goss said of the Kansas survey.

A similar survey conducted nationwide showed manufacturing activity grew for the seventh straight month in August, although at a pace that was below analysts' expectations.

The Tempe, Ariz.-based Institute for Supply Management said its index of business activity remained steady at 50.5 in August compared with July. Analysts had been expecting a reading of 51.8.

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