Colorado business index rebounds

An index tracking business conditions in Colorado has seesawed back up in part on improved hiring in the construction sector, regaining ground lost the previous month. The Business Conditions Index jumped 9.4 points in August to 59, more than erasing a nine-point decline in July. The index remains below the 61.4 posted in March, however.

Ernie Goss

Ernie Goss, director of the Goss Institute for Economic Research in Denver, attributed the August gain to a number of factors. “Construction employment has increased by 5.2 percent over the past year. This has been a significant stimulant to the overall state economy. Both durable and nondurable goods producers are experiencing healthy growth in sales, new orders and employment,” Goss said.

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. The index ranges from 0 to 100. Readings above 50 forecast an expanding economy over the next three to six months.

In Colorado, the overall index reflected higher component readings for new orders at 58.6, sales or production at 59.3 and employment at 62.5. The Business Conditions Index for the three mountain states advanced nearly three points to 59, the highest reading since the index stood at 62.6 in March. The index has remained above growth-neutral 50 for 34 straight months.

“Construction in Colorado, energy in Colorado and Utah and manufacturing in all three states pushed readings higher for August,” Goss said.

The overall reading for the three states reflected higher component readings for new orders at 53.5 and sales or production at 61.1. The reading for employment edged up two-tenths of a point to 59.2.

“While the region has been adding jobs at a healthy pace, the current level of employment for the region is down by almost 94,000 jobs, or 2.4 percent, from prerecession levels,” Goss said. “Based on 2012 experience, it will take another two years before the region recaptures all of the jobs lost as a result of the recession.”

A component of the index tracking confidence among supply managers in the three states fell more than a point to 46.7. “Supply managers, much like the entire business sector, remain very pessimistic regarding future economic conditions,” Goss said. “The drought, the fiscal cliff, the elections and European economic turmoil are all weighing on economic confidence.”

Nonetheless, supply managers reported adding to inventories of raw materials and supplies for a 33rd straight month, pushing up the component reading for inventories nearly three points to 65.6. “Healthy inventory growth signals that supply managers expect production expansions in the months ahead. I expect the index to decline in the months ahead, as with waning confidence,” Goss said.

The reading for prices paid, a measure of wholesale inflation, climbed more than three points to 65.9. Supply managers responding to the latest survey said they expect the prices of products and services they purchase to rise an average 2.7 percent over the next six months. Goss said the increases raise concerns about inflation: “The period of very benign inflation may be ending.”

The reading for exports advanced nearly two points to 48.2, although the rising value of the dollar against foreign currencies has made U.S. exports less competitive. Regional growth helped push the reading for imports up nearly four points to 54.6.

In Utah, the Business Conditions Index climbed almost six points to 60.6 on stronger component readings for new orders at 53.4 and production or sales at 66.7. The reading for employment slipped to 53.2.

In Wyoming, the Business Conditions Index retreated more than six points to 54.3 on lower readings for employment at 60.2. The readings edged up for new orders at 50.8 and production or sales at 50.5.