Colorado business index rises as job prospects improve

A monthly index tracking business conditions in Colorado posted its first gain in four months as prospects improve for job growth, although at a slow pace.

The Business Conditions Index climbed to 52.3 in October, up 1.7 points from what was in September the lowest level in a year.
“After gaining almost 3,000 jobs between December 2009 and May 2010, the state lost more than 11,000 jobs between May and September. I expect job growth to once again move into positive territory, albeit at a slow pace, in the months ahead,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

Goss calculates the index for the mountain states of Colorado, Utah and Wyoming based on the results of monthly surveys of supply managers in the three states. Index readings range from 0 to 100. Readings above 50 forecast economic growth over the next three to six months.

In Colorado, the Business Conditions Index reflected component readings of 44.7 for new orders, 41.9 for production or sales and 51.1 for employment.

The Business Conditions Index for the mountain states climbed 1.4 points to 55.4. The index reflected higher component readings for new orders at 56 and production or sales at 55.6.

While the index moved higher in October, it’s trended downward since April, Goss said. “I expect positive, but somewhat weaker, growth for the next three to six months.”

The reading for employment fell 2.3 points to 57.9. While 18.5 percent of supply managers responding to the survey upon which the October index was based reported increased staffing, 7.4 percent reported layoffs.

The three states added a total of more than 29,000 jobs between December and May, but lost about 23,000 jobs since then. “Our surveys over the past several months indicate the region will begin to experience positive job growth in the months ahead,” Goss said.

Supply managers forecast an average of a 2.4 percent pay increase for 2011, a point higher than this time last year, but still indicative of a “less than healthy” labor market, Goss said.

Managers also were more upbeat about the next six months, pushing a confidence index up 2.7 points to 62.5. “I continue to be surprised by the relatively strong confidence numbers given the backdrop of negative reports for the national economy,” Goss said. “However, healthy new orders and new hiring for their firms are pushing supply managers’ economic outlook higher.”

Managers reported adding to raw materials and supplies in October, although the inventory index slipped a half point to 50.5. The index has remained above growth-neutral 50 for 11 straight months after more than a year of inventory reductions. However, the proportion of managers reporting their inventories are too high has increased 10 percent since the beginning of the year, Goss said. “To restore sustainable growth, we need to begin to seeing increases in consumer spending and business capital purchases,” Goss said.

The reading for prices paid, a measure of wholesale inflation,  rose more than a point to 66.7. The index has remained above 50 in 16 of the last 17 months. Goss said he expects inflationary pressures to build once the economy fully recovers. Actions by the Federal Reserve to further ease monetary policy ultimately will push those pressures even higher, he said.

Trade numbers improved for October. The reading for new export orders jumped more than eight points to 60.8, while the reading for imports jumped more than 10 points to 65.7. “The export reading is very good news if it continues in future months,” Goss said.

“Exports, particularly of technology related products, are an important source of growth for the region.”

In Utah, the Business Conditions Index rose 1.7 points to 56 on higher readings for new orders at 57.8 and production or sales at 58. The reading for employment slipped to 55.7.

In Wyoming, the Business Conditions Index fell more than two points to 52.2 on readings of 50 for new orders, 49.8 for production or sales and 59.6 for employment.