Colorado business index dips, but still forecasts growth

A monthly economic index tracking business conditions in Colorado has declined, but continues to forecast growth in coming months in part because of rising global demand for energy.

The Business Conditions Index fell 3.2 points in January, but at 54.9 signals expansion over the next three to six months.

“Manufacturing, both durable and nondurable, linked to international markets is experiencing very healthy growth. Colorado firms involved in energy production are also benefitting from strong global growth and upturns in energy commodity prices,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

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 forecast growth over the next three to six months.

In Colorado, the overall index reflected lower component readings for new orders at 53.3 and production or sales at 64.2. The reading for employment remained unchanged at 54.9.

The combined Business Conditions Index for the mountain states slipped 1.4 points to 56.2 in January. But Goss said he expects growth in the first half of the new year. “Even though the leading economic indicator declined slightly, it remained at a level pointing to expanding business conditions for the first half of 2011. January business activity was particularly strong for durable goods manufacturers. This will continue to spark overall economic conditions for the first six months of 2011.”

The regional index reflects slightly lower component readings for  new orders at 59.7 and production or sales at 54.6.

The reading for employment, however, climbed nearly a point to 57.2. “Businesses in our survey are expanding their pace of hiring,” Goss said. “I expect the pace of hiring for the next six months to trend upward, especially for manufacturers tied to energy and the global economy.”

Supply managers responding to the January survey were increasingly upbeat about the next six months, driving up the component reading for confidence more than 10 points to 75. Goss said record-low interest rates, a stabilizing housing market and expanding exports promote a strong economic outlook.

Supply managers reported adding to inventories of raw materials and supplies at a faster pace in January, pushing up the component reading for inventories more than three points to 54. Managers have reported inventory restocking for 14 straight months. “As a result of rising economic confidence, firms in the region continue to expand inventories in anticipation of growing sales in 2011,” Goss said.

The reading for prices paid, a measure of wholesale inflation, rose nearly six points to 77.1 to remain above growth-neutral for 19 of the past 20 months. Goss said prices for metals, fuel and other commodities are rising at what he called an “unsustainable pace.” The increase will translate into rising consumer prices well above the Federal Reserve target rate of 2 percent as well as higher long-term interest rates later this year, he added.

The reading for new export orders jumped more than five points in January to 67, while the reading for imports advanced nearly five points to 59.1. “The mountain states regional economy is experiencing very healthy growth in exports,” Goss said. “The weak U.S. dollar, making U.S. goods more competitively priced abroad, and an improving global economy, are pushing exports higher. This has been and will continue to be an important source of regional growth. Additionally, expanding business conditions in the region are stimulating businesses in our survey to increase their international and domestic buying.”

n In Utah, the Business Conditions Index fell 1.5 points to 55.9 on lower component readings for new orders at 58.7, production or sales at 56.3 and employment at 51.5.

In Wyoming, the Business Conditions Index rose 3.9 points to 61.1 on higher component readings for new orders at 66.7, production or sales at 50 and employment at 81.4.