Colorado business index on the rise

A monthly index tracking business conditions in Colorado has advanced for a second straight month in part because of growth in the energy industry.

The Business Conditions Index edged upward four-tenths to 53.7 for November. The consecutive gains for the index were the first since a three-month string of increases between September and November 2009 led to a reading of 70.3, the highest in almost two years.

“Firms in the state linked to the energy sector continue to experience very healthy growth, offsetting somewhat weaker conditions among the state’s durable goods producers,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

Goss calculates the index for the mountain states of Colorado, Utah and Wyoming based on the results of monthly surveys of supply managers in the three states. Index readings range from 0 to 100. Readings above 50 forecast economic growth over the next three to six months.

In Colorado, the overall Business Conditions Index reflected higher component readings of 63.3 for new orders 46.7 for production or sales and 64.8 for employment.

“Many of the added workers over the past several months are temporary. I expect more and more permanent hires in the months ahead,” Goss said.

The combined Business Conditions Index for the mountain states rose six-tenths to 56 in November, forecasting growth, albeit at a slow pace. “Even though the leading economic indicator has been above growth-neutral for some time, growth has been, and will continue to be, modest,” Goss said.

“While our survey is dominated by manufacturers, it is the value-added services providers that are reporting much-improved business conditions,” he added. “Both durable and nondurable goods producers in the region continue to expand production with little or no growth in hiring. I do expect a turnaround in manufacturing hiring over the course of the next several months.”

The index reflects a higher reading for new orders at 59, but lower readings for production or sales at 54.7 and employment at 57.2. “Companies that have added significant new workers have relied on temporary workers for the increase,” Goss said.

Nonetheless, supply managers remain increasingly upbeat about the next six months, pushing up a confidence index four-tenths to 62.9.

“While the overall U.S. economy remains weak as gauged by unemployment rates, individual firms in the mountain states region are experiencing solid improvements in business conditions. This is translating into a strong economic outlook,” Goss said.

Supply managers reported adding to inventories of raw materials and supplies for 12th straight month, but at slower pace. The November reading for inventories rose six-tenths to 51.5.

The reading for prices paid, a measure of inflation at the wholesale level, advanced more than a point to 67.8. The index has remained above growth-neutral 50 for 17 out of the past 18 months. Goss said 6.8 percent of supply managers responding to the November survey anticipate increasing prices over the next six months, up from 4.8 percent in July.

Trade numbers remained healthy in November, although the reading for export orders slipped seven-tenths to 60.1 and the reading for imports retreated more than nine points to 56.3. “Unless the debt problems of Portugal, Ireland and Spain spill over into the rest of the Euro zone, I expect strong energy income to continue to push the mountain states economy forward,” Goss said. However, a decline in the Euro relative to the dollar could affect U.S. energy commodity prices and weaken regional economic growth, he added.

In Utah, the Business Conditions Index edged up a tenth to 56.1 with component readings of 56.4 for new orders, 56.5 for production or sales and 53.8 for employment.

In Wyoming, the Business Conditions Index jumped more than two points to 54.4 with component readings of 66.7 for new orders, 49.9 for production or sales and 63.1 for employment.