Colorado business index dips, but still forecasts growth

A monthly measure of business conditions in Colorado has declined on mixed reports of activity, but still forecasts growth in coming months.

The Business Conditions Index fell nearly six points in April, but at 53.8 continues to signal an expanding economy.

“Durable goods producers continue to report expanding business activity, especially that linked to international markets,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver. “We are beginning to see improving prospects for the state’s large computer and electronic component manufacturers.”

Goss added, however: “Nondurable goods detailed less robust economic activity for the month. Telecommunications firms have yet to begin hiring in the state.”

Goss calculates the Business Conditions Index for Colorado as well as for Utah and Wyoming and the three-state mountain region. The index, based on the results of monthly surveys of supply managers, ranges from 0 to 100. Readings above 50 forecast expanding conditions over the next three to six months.

In Colorado, the lower index reading reflected lower component readings for new orders at 63.9, production or sales at 59 and employment 51.7.

The combined Business Conditions Index for the mountain states region retreated 2.6 points to 58.6 in April. Still, the index remained above growth-neutral 50 for an 18th consecutive month.

While higher energy prices have hampered growth for some businesses, higher prices improve the outlook for other businesses, Goss said. “We are beginning to see high energy prices cut into economic growth for some firms even as higher energy commodity prices improve the outlook for businesses linked to the energy sector and agriculture.”

The overall regional index reflected lower component readings for new orders at 65 and production or sales at 60.7. The reading for employment slumped nearly four points to 51.8.

“After many months of rising new orders, sales and productivity, firms in the region continue to expand hiring. However, the pace of that hiring slowed. … The Federal Reserve’s weak dollar policy has bolstered commodity prices and economic prospects of firms selling internationally,” Goss said.

Supply managers in the three states responding to the April survey remained mostly upbeat in their expectations for the next six months as the component reading for confidence edged up a tenth to 62. “Despite significantly higher input prices, supply managers remain upbeat in their economic outlook,” Goss said.

Supply managers also reported adding to inventories of raw materials and supplies, although the component reading for inventories slipped 1.1 points to 58. “This is the 17th straight month that we have recorded inventory growth,” Goss said. “As a result of rising economic confidence, firms in the region continue to expand inventories in anticipation of growing sales in 2011.”

Meanwhile, though, inflationary pressures continue to rise. The reading for prices paid, a measure of inflation at the wholesale level, climbed to 90, the highest level in the 17-year history of the index.

Many supply managers responding to the April survey expect to pay higher prices for products and services over the next six months, Goss said. About 32 percent of managers anticipate prices to increase more than 6 percent. An annualized increase of more than 9.3 percent is expected. That compares to an expected increase of 6.8 percent when managers were asked the same question in November, he said.

A cheap U.S. dollar compared to foreign currencies and an expanding global economy continue to bolster exports. The regional component reading for export orders rose nearly a point to 63.4 in April, while the import reading fell nearly four points to 53.4.

In Utah, the Business Conditions Index fell nearly three points to 56.9 in April on component readings of 61.5 for new orders, 58.7 for production or sales and 50.5 for employment.

In Wyoming, the Business Conditions Index dipped 1.5 points to 67.5 in April on component readings of 78 for new orders, 71.6 for production or sales and 59.1 for employment.