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In the Mountain States, a leading economic indicator looks healthy

Ernest Goss //July 5, 2011//

In the Mountain States, a leading economic indicator looks healthy

Ernest Goss //July 5, 2011//

For the 20th straight month, the overall index for the Mountain States region – a leading economic indicator for the three-state area of Colorado, Utah and Wyoming – advanced above growth neutral 50.0. Supply managers report that despite continuing supply disruptions and elevated commodity prices, business conditions remain healthy. This growth is expected to continue for the next three to six months.

Overall Index: The overall index, or Business Conditions Index, which ranges between 0 and 100, rose to 58.4 from May’s solid 57.5. An index of 50.0 is considered growth neutral. The overall index, or Business Conditions Index, is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time. This is the same methodology used by the national Institute for Supply Management

“Almost 20 percent of supply managers reported that supply disruptions in the mid-west related to the flooding and in Japan associated with the tsunami have produced some pullbacks. Despite this, a high share of businesses in the region report improving economic conditions. Energy firms as in past months are benefiting from elevated energy commodity prices,” Goss Institute for Economic Research Director Dr. Ernie Goss says.

The Goss Institute conducts the monthly survey for Supply Management Institutes in the three states comprising the Mountain States region. Goss also directs Creighton University’s Economic Forecasting Group and is the Jack A. MacAllister Chair in Regional Economics.

Employment: The June employment index advanced to 57.6 from 54.9 in May. “Since bottoming out in January 2010, the region has added almost 60,000 jobs, or a 1.6 percent gain. Based on recent surveys of supply managers in the region, I expect the region to add approximately 46,000 jobs for a 1.2 percent gain for the rest of 2011. Firms selling internationally will be prime beneficiaries of the continuing expansion,” Goss says.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, declined to a still inflationary 77.1, down from 85.4 in May.

The U.S. dollar has temporarily ceased its downward movement.

“For the month of June, the U.S. dollar sank by 1.3 percent against the world’s major currencies. With the end of the Fed’s QE2 program effective July 1, we should see even more short term strengthening in the value of the U.S. dollar. This will tend to put downward pressure on inflation, especially for commodity prices,” Goss says. “However, I remain a long-term bear on the value of the dollar. I expect the dollar to continue to weaken in the final quarter for 2011 due to the Fed’s low interest rate policies, large U.S. trade deficits and Chinese Yuan strengthening against the dollar. Thus, I expect inflation at the consumer level to remain a problem for the remainder of 2012.”

Business Confidence: Looking ahead six months, economic optimism, captured by the confidence index, fell to 52.1 from May’s 60.0. “Elevated energy prices combined with uncertainty surrounding the national economy and U.S. debt situation served to puncture business confidence for the month,” Goss says.

Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month with a reading of 56.8, up from 54.0 in May. “This is the nineteenth straight month that we have recorded inventory growth,” Goss says.

Trade: The regional export orders index plummeted to 50.0 for June, down from May’s very strong 64.1. The region’s import reading was unchanged from May’s 50.0.

Other Components: Other components of the June Business Conditions Index were new orders at 63.0, down from 64.0 in May; production or sales at 59.8, up from 59.7; and delivery lead time at 54.5, down slightly from 54.7 in May.

The Institute for Supply Management, formerly the Purchasing Management Association, has been formally surveying its membership since 1931 to gauge business conditions. The Goss Institute uses the same methodology as the national survey. The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months. The overall index is a mathematical average of new orders, production or sales, employment, inventories and delivery lead time.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in Colorado, Utah, and Wyoming since 1994 to produce leading economic indicators of the Mountain States region.

Colorado: The state’s leading economic indicator, based on a monthly survey of supply managers in the state, slumped for June. The overall index for June, termed the Business Conditions Index, declined to a still solid 54.4 from May’s 62.9.

Components of the Business Conditions Index for June were new orders at 66.0, production or sales at 52.2, delivery lead time at 52.3, inventories at 42.5, and employment at 59.2.

“Since bottoming out in January 2010, the Colorado economy has added approximately 24,000 jobs for a 1.1 percent gain. Based on our surveys, I expect the state to continue to add jobs at a healthy pace with an employment increase of more than 18,000, or 0.8 percent, for the rest of 2011,” Goss says.
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