Colorado business index slips, but forecasts growth

Ernie Goss

A monthly index tracking business conditions in Colorado has slipped again, but continues to forecast growth during the second half of the year.

The Business Conditions Index fell nearly four points in July, but at 54.8 remains well above growth-neutral 50.

“Nondurable and durable goods producers, especially those linked to construction and vehicle manufacturing, are experiencing upturns in business activity,” 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. The index ranges from 0 to 100. Readings above 50 signal expanding economic conditions over the next three to six months.

In Colorado, the index has dropped the past two months, retreating from a reading in May that at 62.8 was the highest in two years.

For July, the overall reading reflected a lower component reading for new orders at 52.1. The reading for employment slipped to 50.7 even though Colorado added jobs at a pace of more than double the United States during the first half of 2013, Goss said. The reading for production or sales edged up four-tenths of a point to 49.6.

The combined Business Conditions Index for the mountain states declined 3.5 points to 55.1.

“As in the last several months, economic soft patches in the mining and agriculture sectors are spilling over into the broader economy.

Furthermore, much weaker export numbers are likely to restrain growth in the months ahead,” Goss said. “Our surveys over the past several months indicate that growth for the second half of 2013 will be positive, but down from the same period for 2012.”

The overall mountain states reading reflected lower component readings for new orders at 53.5, production or sales at 54.3 and employment at 49.4.

“Despite the weakness recorded for July, I expect the regional economy to add jobs at an annual pace of 1.5 percent during the second half of 2013. This is well down from the second half of 2012,” Goss said.

A component of the index tracking confidence among supply managers in the mountain states fell more than two points to 52.1. “Higher interest rates and global economic weakness and uncertainty cooled economic optimism for July,” he said.

The share of supply managers reporting the effects of government spending cuts under sequestration climbed to 38.5 percent, he said.

“The negative impacts are rising, but are still modest.”

A component of the index tracking inventories of raw materials and supplies tumbled nine points in July, but at 58.7 reflected growing inventories for a 44th consecutive month.

The reading for prices paid, a measure of wholesale inflation, sank 3.4 points to 52.5. Low inflationary pressure offers the Federal Reserve flexibility in ending a bond-buying program intended to stimulate the economy, Goss said. He expects the Fed to start scaling back bond purchases in September.

The reading for new export orders in the mountain states region fell nearly two points to 51.8, while the reading for imports decreased nearly five points to 48.4. “Economic pullbacks and slowdowns in Asia and Europe, along with increases in the value of the U.S. dollar, are having clear negative impacts on sales abroad. At the same time, slower regional growth pushed the import reading lower,” Goss said.

In Utah, the Business Conditions Index fell more than three points to 54.3 on lower component readings for new orders at 54.5, production or sales at 57.1 and employment at 48.6.

In Wyoming, the Business Conditions Index dropped more than six points to 55.9 on lower component readings for new orders at 58.5, production or sales at 53.6 and employment at 53.4.