Colorado business index slips

A monthly measure of business conditions in Colorado has edged downward, but continues to forecast expansion in the months ahead.

The Business Conditions Index slipped two-tenths of a point in July, but at 54.2 still signals an expanding economy over the next three to six months.

“Based on recent surveys, I expect continuing improvements in the state’s labor market with somewhat slower growth and a slight improvement in the state unemployment rate,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

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.

In Colorado, the index has dipped to its lowest level since April, but has remained above growth-neutral 50 since September 2009.

The overall index for July reflected lower component readings for new orders at 58 and production or sales at 51.1. The reading for employment, however, jumped nearly eight points to 67.1.

“Driven by solid employment gains and unemployed exiting the work force, Colorado’s unemployment rate has declined by 0.7 percent over the past three months,” Goss said.

The statewide seasonally adjusted unemployment rate fell

two-tenths to 8.5 percent in July, the latest month for which estimates are available, with an increase of 4,500 in nonfarm payrolls.

The combined Business Conditions Index for the three mountain states fell a point in July, but at 57.4 remained above growth-neutral 50 for a 21st consecutive month.

Higher energy prices constitute something of a “double-edged sword” in the mountain states economy, Goss said. “Energy firms and firms linked to this sector continue to experience healthy growth. On the other hand, higher energy prices are reducing the growth of big users of energy, such as manufacturers.”

The overall index reflected mixed results for component readings with new orders down at 55.2, but production or sales up slightly at 59.9. The reading for employment retreated 1.4 points to 56.2.

The July survey asked supply managers how much of a pay raise they anticipate over the next year. On average, managers said they expected an increase of only 1.5 percent, Goss said. “Even though job prospects have improved over the past six months, supply managers see little opportunity for wage growth over the next year.”

The reading for confidence among supply managers in the three states fell two points to 50.1. Goss attributed the reading in part to higher energy prices and an unhealthy housing market.

The reading for the prices of raw materials and supplies retreated more than nine points, but at 67.8 still forecasts wholesale inflation. Goss said supply managers responding to the July survey said they expect an annual increase of 7.3 percent in the prices they pay for products and services. “Clearly, inflation expectations remain high among supply managers.”

Supply managers reported adding to inventories for raw materials and supplies for a 20th straight month, although the reading for that component of the index fell six-tenths to 56.2.

The reading for export orders advanced 4.2 points to 54.2., matching the reading for imports. Goss said a weakening U.S. dollar compared to foreign currencies continues to bolster regional exports.

In Utah, the Business Conditions Index climbed 2.4 points to 57.4 on higher readings for production or sales at 58.9. The reading for new orders fell to 49.4, while the reading for employment slipped a tenth to 53.3.

In Wyoming, the Business Conditions Index fell nearly six points to 70.6 on lower readings for new orders at 81.6 and employment at 76.1. The reading for production or sales moved up to 72.