Colorado business index advances

Ernie Goss

A monthly index tracking business conditions in Colorado has rebounded from a seven-month low on improving job growth and increased spending in the energy sector.

The Business Conditions Index rose in June to 58.6, nearly three points above the reading for May, the lowest level since October.

“Colorado’s job additions for 2012 are 10,000 greater than for the same period in 2011,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver. “Both durable and nondurable goods manufacturers in Colorado are benefiting from healthy expansions in energy income.”

Goss calculates the Business Conditions Index for the mountain states of Colorado, Utah and Wyoming based on the results of monthly surveys of supply managers in the three states. Readings range from 0 to 100.

Readings above 50 signal expanding conditions over the next three to six months.

In Colorado, the overall index reading reflected higher component readings for new orders at 56.3, production or sales at 56.9 and employment at 66.9.

“Given the direction in exports and the value of the U.S. dollar, I expect second-half Colorado job growth to be down from that experienced in the first half of the year.” Goss said. “Nonetheless, it will continue to be positive and above that of the nation.”

The Business Conditions Index for the three mountain states advanced more than a point in June to 57.2, rebounding from its lowest reading since November 2010. The index has remained above growth-neutral 50 for 32 straight months.

“Although businesses that we survey continue to benefit from healthy farm and energy income, recent gains in the value of the U.S. dollar and global economic conditions are likely to weaken this growth in the months ahead,” Goss said. “The stronger dollar tends to make U.S. goods less competitive abroad and push energy and agricultural commodity prices lower.”

The overall reading for the index in June reflected higher component readings for new orders as well as production or sales, both at  53.8.

The reading for employment edged up a tenth to 63.

“The mountain states region continues to outperform the U.S. in terms of job growth,” Goss said. “While the region accounts for approximately 2.9 percent of the nation’s employment, it has contributed more than 4.2 percent of 2012 U.S. job additions. Based on our survey results, this regional advantage should continue for the near term or three to six months.

Even so, job gains for the rest of 2012 for the Mountain States will be down from that experienced in the first half of 2012, but remain positive.”

A component of the index measuring confidence among supply managers in the three states retreated more than five points to 53.4. “European economic turmoil continues to whittle away at economic confidence, especially for those firms in the energy sector or closely linked to the energy sector,” Goss said.

Supply managers reported adding to inventories of raw materials and supplies for a 31st straight month, pushing up the reading for inventories more than four points to 60.9.

The reading for prices paid, a measure of wholesale inflation, fell more than three points to 62.4. “The degree to which inflationary pressures have cooled has surprised me,” Goss said. “This is an important signal and indicates that the Federal Reserve can become more aggressive in its stimulation of the U.S. economy without any significant inflation fears.”

Asked about the biggest hurdles facing their businesses in the coming year, 43 percent of supply managers cited European economic turmoil, 26 percent cited slow wage growth, 13 percent the housing market and 9 percent each the implementation of health care reform legislation and the potential end of Bush-era tax cuts.

In Utah, the Business Conditions Index edged up two-tenths of a point to 55.5 on higher component readings for production or sales at 56.9 and employment at 66.9. The reading for new orders slipped to 51.7.

In Wyoming, the Business Conditions Index fell nearly a point to 55.7 on lower component readings for new orders at 48.8 and employment at 54.6. The reading for production or sales edged up to 49.5.