Hurricanes Katrina and Rita have sent prices for raw materials soaring, increasing the likelihood of inflation and higher interest rates, according to a pair of studies released Monday.
Locally, the September Mountain States Business Conditions Index declined to 67.2 from August's 71.2 and July's 72.4. The study surveys supply managers and business leaders in Utah, Colorado and Wyoming.
While the region's business conditions index remained "vigorous," its confidence index, which tracks survey participants' economic expectations six months out, plummeted to 62.5 from August's 71.7, according to the study's author, Ernie Goss, an economics professor at Creighton University in Omaha, Neb., and director of the Creighton Economic Forecasting Group.
"It's not surprising, thanks to Hurricanes Katrina and Rita, rising short-term interest rates and escalating energy prices, that confidence continued to slide from higher numbers earlier in the year," Goss wrote in the report.
In a broader, national survey, the Institute for Supply Management reported Monday that its manufacturing index advanced to 59.4 in September from 53.6 the month before for the industrial sector's 28th consecutive month of growth. It was the highest reading since the gauge hit 59.6 in August 2004 and well above the 54 reading analysts had expected.
In both the state and national indexes, a reading above 50 indicates the sector is expanding; below 50 indicates manufacturing activity is shrinking.
The institute's report stole momentum from stock markets Monday. The Dow Jones industrial average fell 33.22, or 0.31 percent, to 10,535.48. The Standard & Poor's 500 index lost 2.11, or 0.17 percent, to 1,226.70, and the Nasdaq composite index rose 3.74, or 0.17 percent, to 2,155.43.
Utah's business conditions index climbed to 66.5 last month from August's 64.3 and July's 56.8.
"Firms across the state reported upturns in new hiring," Goss wrote. "Durable and non-durable manufacturers along with business services firms reported very healthy economic conditions for the month. Only food processors and firms in the information sector experienced flat business growth over August levels."
Wyoming's index dipped to 79.1 from 83.2 in August and 84.4 in July, while Colorado dropped to 60.0 from August's 67.4 and July's 72.9.
Manufacturers nationwide reported another sharp jump in prices last month as higher crude oil costs and transportation problems caused by the hurricanes boosted input costs. The ISM's price index rose to 78 in September, a 15.5 point rise from 62.5 in August, the institute said. The price index had jumped 14 points the month before.
Locally, the regional prices-paid index jumped to 86.8 from August's 79.5, indicating significant inflationary pressures produced by rising prices for raw materials and supplies bought by firms in the region, Goss said.
Norbert J. Ore, chair of the ISM's business survey committee, said September's strength came from expansion in new orders and production, but he also noted the possibility of higher inflation.
"While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum," Ore said in a statement accompanying the numbers.
But Anthony Chan, managing director and senior economist at JPMorgan Asset Management in Columbus, Ohio, said the report reflects "a level of optimism that was not dented as much as one would have expected by Hurricane Katrina."
Chan said the growth in new orders, production and employment suggested that many manufacturers are operating as if they believe "the effects of Katrina will be short-lived." And, he noted, this makes sense "when you start to realize all the stimulus that's going to take place . . . with the replacement of machinery and equipment and the rebuilding efforts in the Gulf states."
The new orders index expanded to 63.8 in September from 56.4 in August. The production index rose to 63.1 from 55.9 the month before. The employment index rose to 53.1 in September from 52.6 in August.
Also Monday, the U.S. Commerce Department reported that construction spending climbed to a record high in August, helped by a renewed boom in housing. Even bigger gains are expected in coming months, spurred by the massive rebuilding required in the wake of Katrina, which hit the Gulf Coast on Aug. 29, and Hurricane Rita, which struck the coast last month.
The Commerce Department said total August construction spending rose by 0.4 percent, the biggest increase in three months. It pushed building activity to an all-time high of $1.11 trillion at a seasonally adjusted annual rate.
The increase did not include any hurricane-related activity because Katrina did not strike until late in August. But the government said all the spending on the rebuilding of homes and businesses in coming months will add to the construction figures.
E-mail: jnii@desnews.com