Colorado business index dips, but forecasts growth

A monthly index tracking business conditions in Colorado slipped in January, but still reflects economic growth driven in large part by the energy sector. The Business Conditions Index retreated 2.1 points, but at 57.5 continues to forecast growth.

“The state’s large energy sector is pushing the state economy forward even as the construction industry weighs on the economy,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

Ernie Goss

Goss calculates the Business Conditions Index for Colorado, Utah and Wyoming based on the results of surveys of supply managers in the three states. Readings range from 0 to 100. Readings above 50 forecast expanding economic conditions over the next three to six months.

In Colorado, durable and nondurable goods manufacturers, especially those with ties to energy and international markets, continue to benefit from a weak U.S. dollar compared to foreign currencies, Goss said.

The overall index reading reflected lower component readings for new orders at 55.2 and production or sales at 58.3. The reading for employment rose nearly two points to 63.3, although payrolls still must grow 105,000 to return to pre-recession levels, Goss said.

The combined Business Conditions Index for the three mountain states climbed to 61.3, the highest reading since the index stood at 61.2 in March. The index has remained above growth-neutral 50 for 27 straight months.

“Mountain states growth has significantly exceeded and will likely surpass that of the national economy,” Goss said. “Surveys of supply managers in the region point to healthy job growth for the first half of 2012. Growth will be especially strong for firms tied to agriculture, energy and international markets.”

The overall index for the mountain states reflected higher component readings for new orders at 6 and production or sales at 67.4.

The reading for employment fell 1.5 points to 57.2. Goss expects job growth to slow. “In the first half of 2011, the region added jobs at an annualized pace of

2.1 percent. Based on our survey results, I expect that rapid pace to slow to 1.4 percent for the first half of 2012. Even with this slower job growth, the region will add more than 27,000 jobs for the first six months of the year, leaving the region off more than 116,000 jobs since the beginning of the recession.”

A component of the index measuring confidence among supply managers in the three states edged up two-tenths of a point to 57.8. “Recent positive economic data on the national front have had clear and positive impacts on supply managers’ outlook,” Goss said.

In assessing various risk factors, 56 percent of supply managers cited rising energy prices as the greatest threat to the growth of their firms, while 20 percent cited federal regulations.

Supply managers reported adding to inventories of raw materials and supplies for a 26th straight month, pushing up the component reading for inventories up three-tenths of a point to 66.3.

The reading for prices paid, a component of the index tracking wholesale inflation, jumped more than five points to 73.9. Supply managers responding to the surveys upon which the January index was based said on average they expect prices to increase 3.4 percent over the next six months.

The reading for regional export orders retreated more than six points to 60, while the reading for import orders fell 1.5 points to 54.7.

“While the dollar has strengthened recently, the overall trend is decidedly toward a weak dollar, making U.S. goods more competitively priced abroad,” Goss said.

In Utah, the Business Conditions Index rose nearly two points to 61.3 on higher component readings for new orders at 62 and production or sales at 69.6. The reading for employment fell to 54.4.

In Wyoming, the Business Conditions Index fell nearly two points to 61.3 despite higher component readings for new orders at 62, production or sales at 69.6 and employment at 54.4.