Colorado business index retreats

A monthly index tracking business conditions in Colorado has slipped to its lowest level in seven months, but continues to forecast growth.

The Business Conditions Index fell more than three points to 55.7 in May. With losses in each of the past two months, the index has dropped to its lowest level since it stood at 53.3 in October.

Nonetheless, the index still signals expanding conditions, said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

“Durable goods producers are outperforming nondurable goods manufacturers in the state. Heavy manufacturers are adding employees at the same time that they are expanding the hours worked of their current work forces,” he said.

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 expanding conditions over the next three to six months.

In Colorado, the overall index reading reflected lower component readings for new orders at 56, production or sales at 54.9 and employment at 64.8.

The Business Conditions Index for the three mountain states fell nearly three points to 56 in May. With declines in each of the last three months, index now matches its lowest level since November 2010.

While the index has remained above growth-neutral 50 for a 31 straight months, there are indications regional economic growth could slow, Goss said. “The businesses that we survey continue to benefit from healthy farm and energy income and exports early in 2012. However, recent strong gains in the value of the U.S. dollar have reduced energy and farm commodity prices and additionally made U.S. goods less competitively priced abroad. This has and will continue to soften economic growth in the region,” Goss said. “At this point in time, growth will still be positive, but somewhat slower. Technology firms, especially those dependent on international sales, will experience somewhat slower growth in the next three to six months.”

The overall reading for the three states reflected lower component readings for new orders at 53 and production or sales at 52.9. The reading for employment rose seven-tenths of a point to 62.9. “In manufacturing, durable goods producers are adding jobs at a much faster rate than nondurable goods manufacturers,” Goss said. “Firms linked to energy and agriculture continue to add jobs, but the rate of growth will diminish in the months ahead due to a stronger dollar, which lowers energy and farm commodity prices.”

A component of the index measuring confidence among supply managers in the mountain states fell almost two points to 58.9. “Recent negative reports on U.S. economic and job growth are clearly hurting the economic outlook of supply managers that we surveyed in May,” Goss said.

Supply managers reported adding to inventories of raw supplies and materials in May for a 30th straight month of inventory growth. The reading for inventories climbed more than a point to 56.7.

The reading for prices paid, a measure of wholesale inflation, retreated nearly seven points to 65.7. Supply managers responding to the surveys upon which the May index was based expect prices to increase 2.7 percent over the next six months.

The reading for regional export orders fell more than seven points to 48.4, while the reading for imports fell nearly four points to 53.7.

“Gains in the value of the U.S. dollar and weaker global growth are suddenly damaging exports from the region,” Goss said. “The economic turmoil in Europe and slower Asian economic growth are becoming headwinds.”

In Utah, the Business Conditions Index edged down seven-tenths of a point to 55.3 on lower component readings for new orders at 53.4 and production or sales at 54.5. The reading for employment rose more than a point to 60.

In Wyoming, the Business Conditions Index tumbled 12 points to 56.5 on lower component readings for new orders at 52.6, production or sales at 49 and employment at 56.7.