Colorado business index slumps, but still forecasts growth

A monthly index tracking business conditions in Colorado has slumped to its lowest level in nearly a year, yet continues to forecast growth in the months ahead.

The Business Conditions Index fell more than three points to 53. That’s the lowest level since the index stood at 48.7 in September 2009. Still, the latest reading remains above growth-neutral 50, signaling expanding economic conditions in the next three to six months, albeit at a slowing pace and despite growing concerns.

“Colorado is not benefiting as much from the energy industry expansion as Utah and Wyoming,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver. Goss calculates Business Conditions Indexes for the three states based on the results of monthly surveys of supply managers.

“Computer and electronic component manufacturers in the state continue to lose jobs even with a slight uptick in new orders,” Goss said of Colorado. “Manufacturers in the state are expanding output without any new hiring as a result of productivity growth.”

The overall reading for Colorado declined on lower component readings for new orders at 46.6, production or sales at 49.4 and employment at 57.1.

The combined Business Conditions Index for the mountain states of Colorado, Utah and Wyoming fell nearly four points to 54.7, the lowest level since October.

The latest reading reflected lower component readings for new orders at 51.7, production or sales at 54 and employment at 57.6. Goss said the index points to slower growth, but not a return to recession.

The outlook among supply managers in the mountain states is increasingly pessimistic, however. A measure of confidence among the managers fell more than seven points in August to 55.3 as news about the weak economic recovery nationally affects regional expectations, Goss said.

Out of supply managers responding to the surveys upon which the August index was based, 32 percent said they considered it likely or very likely the U.S. economy would slip back into recession in 2011. Meanwhile, just 8 percent said they believed a recession next year was unlikely or very unlikely. The remaining 60 percent said there was a 50-50 chance of recession in 2011.

Supply managers reported adding to inventories or raw materials and supplies in August. Still, the reading for inventories fell more than 12 points to 55.3, reflecting slower growth in restocking.

On an annualized basis, the mountain states have added jobs at a faster pace than the nation and Goss said he expects that gap to widen as U.S. job growth slows this year.

The reading for prices paid, a measure of inflation at the wholesale level, slipped four-tenths of a point to 65, but has remained above growth-neutral 50 in 14 out of the last 15 months. “Based on our survey results as well as other surveys of supply managers, I still think fears of deflation are way overblown,” Goss said. “Once the economy gets fully back on track, inflation and price bubbles will be the problem, not deflation.”

Fully 58 percent of Mountain states managers responding to the August surveys said they expect price increases for their companies’ products and services in 2011, while 8 percent anticipate decreases and 34 percent believe prices will hold steady.

Trade numbers fell in August with the reading for new export orders down more than a point to 51.5. “Exports, particularly technology equipment, will be an important factor that sustains a regional economic expansion,” Goss said. “Those weaker numbers are of some concern.”

In Utah, the Business Conditions Index fell nearly four points to 54.8 on lower component readings for new orders at 53.7, production or sales at 59.5 and employment at 53.4.

In Wyoming, the Business Conditions Index edged down a tenth of a point to 57.5. Component readings came in slightly higher for new orders at 49.9 and production or sales at 49.2. The reading for employment slipped to 63.3.