Colorado business index rebounds from four-month slump

Ernie Goss

An index tracking business conditions in Colorado rebounded in October to end a four-month slide as prospects improved for computer and electronic component manufacturers as well as the energy industry.

The Business Conditions Index rose 1.4 points to 53.3. The gain was the first since May and pulled the index off its lowest level in a year.

“Both durable and nondurable goods manufacturers reported very modest growth, with metal product manufacturers detailing pullbacks as computer and electronic component manufacturers experience improving growth. As in past months, energy and supporting industries reported very strong growth for October,” 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 states. Readings range from 0 to 100. Readings above 50 forecast expanding economic conditions.

The overall reading for Colorado reflected a slightly higher reading for production or sales at 56.6, but lower readings for new orders at 48.5 and employment at 54.4.

The combined Business Conditions Index for the mountain states slipped a half point in October, but at 57.3 remained above growth neutral 50 for a 26th consecutive month.

“The mountain states economy continues to expand with little evidence of an impending recession,” Goss said. “Businesses with close ties to agriculture, energy and exports continue to expand and add jobs at a health pace.”

The overall reading reflected slightly lower readings for new orders at 60.3 and production or sales at 57.9. The reading for employment fell 2.5 points to 53.9.

“The region continues to add jobs at roughly four times that of the rest of the nation,” Goss said. “The unemployment rate for the region has dipped by two-tenths of one percentage point over the past three months. I expect a similar decline in the next three months.”

Based on the latest survey results, the outlook among supply managers in the three states improved, driving up a business confidence index more than 10 points to 52.3. “Inventory additions, along with a sharp upturn in business confidence, are contrary to what we are seeing at the national level,” Goss said.

Nonetheless, expectations have increased among supply managers the United States economy will move back into recession in 2012, Goss said.

While 33 percent of managers responding to the latest survey believe a recession is likely, 19 percent believe a recession is unlikely. The remaining 48 percent assessed the probability of a recession at 50-50.

Asked the same question a year ago, only 15 percent of managers expected a recession in 2011, while 34 percent considered a recession unlikely.

Supply managers also were asked about the expected change in holiday related business activity. Overall, only a 0.6 percent increase is expected, compared to the 2.1 percent growth projected last year.

“While none of the survey participants are in the retail sector, they do depend on holiday buying to support their businesses,” Goss said.

Supply managers reported adding to stocks of raw materials and supplies in October, pulling up the reading for inventories 1.6 points to 58.9.

The reading for the prices paid for raw materials and supplies slipped seven-tenths to 70.5.

The reading for regional export orders tumbled 14 points to 59.4, while the reading for imports dipped nearly a point to 55.4.

In Utah, the Business Conditions Index rose 1.4 points to 56.8 on higher readings for new orders at 58.3, sales or production at 61.3 and employment at 52. Supply managers in a range of industry sectors, especially the energy sector, reported growth, Goss said.

In Wyoming, the Business Conditions Index retreated nearly six points to 60.9 on lower readings for new orders at 76 and production or sales at 45.2. The reading for employment increased nearly 10 points, however, to 65..2  “Energy and energy support firms continue to report very robust growth,” Goss said. “On the other hand, manufacturing not linked to energy experienced pullbacks for the month.”