Colorado business index falls to 12-month low, but still forecasts growth

A monthly index tracking business conditions in Colorado has retreated to its lowest level in a year, yet continues to forecast economic expansion through the remainder of 2011.

The Business Conditions Index fell nearly two points to 51.9 in September. With declines in each of the last four months, the index is now at its lowest level since September 2010. Nonetheless, the index continues to signal expanding conditions.

Ernie Goss

“Manufacturing employment has expanded at a solid pace over the past year. Likewise, firms have increased the hours worked for current employees. Our surveys point to continued economic expansion in the state for the rest of 2011,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

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

The overall reading for Colorado reflected lower component readings for new orders at 52 and employment at 56.8. The reading for production or sales jumped nearly five points to 55.3.

The statewide seasonally adjusted unemployment rate held steady at 8.5 percent in August, the latest month for which estimates are available.

Nonfarm payrolls fell 1,800.

The combined Business Conditions Index for the mountain states advanced a point to 57.8 in August to remain above growth-neutral 50 for a 23rd consecutive month.

“National data indicate that the U.S. economy is teetering on economic recession. On the other hand, the mountain states region continues to expand with little evidence of an impending recession,” Goss said.

“Businesses with close ties to agriculture and energy continue to expand and add jobs at a healthy pace.”

The overall reading reflected mixed results for component readings with new orders done down at 60.5 and production or sales up at 60.7. The reading for employment fell more than a point to 56.4.

While job growth continues in the mountain states, some layoffs could be coming, Goss said. While 72 percent of supply managers responding to the September surveys said they expect payrolls to grow or remain unchanged over the next six months, 28 percent of managers said they expect layoffs. In December, only 7 percent of managers anticipated layoffs.

The outlook among supply managers in the three states has grown increasingly pessimistic, bringing the business confidence index down to 42. “It is clear that the economic uncertainty engulfing Europe and the U.S. have dampened the economic outlook of supply managers in the region,” Goss said. “Even though the regional economy continues to grow, supply managers remain concerned about the likely impact of a U.S. recession.”

At the same time, though, supply managers reported adding to inventories of raw materials and supplies for a 22nd straight month, pulling up the reading for inventories to 57.3.

The reading for regional export orders surged more than 16 points to 73.4, while the import reading fell four-tenths to 56.3.

The reading for prices paid for raw materials and supplies, a measure of wholesale inflation, retreated nearly five points to 71.2, although Goss said he still expects inflation to climb.

In Utah, the Business Conditions Index edged down two-tenths to 55.4 on component readings of 54.1 for new orders, 60 for production or sales and 51.3 for employment. “Construction tied to energy and manufacturing has been an important component of growth,” Goss said.

In Wyoming, the Business Conditions Index jumped more than six points to 66.8 on higher component readings for new orders at 77.1 and production or sales at 65.5. The reading for employment fell more than a point to 55.4. “Firms supporting the energy sector and companies continue to report very strong growth in the state,” Goss said.