Colorado business index slumps, but still forecasts growth

Ernie Goss

A monthly index tracking business conditions in Colorado has declined to its lowest level of the year on lower readings for new orders and employment, yet continues to forecast growth in the months ahead.
The Business Conditions Index fell more than 12 points in July, but at 56.2 remains above growth-neutral 50. The index, which has seesawed between gains and losses for seven consecutive months, has returned to the same level posted in January.
Ernie Goss, director of the Goss Institute in Denver, said different manufacturers reported different conditions in July. “Durable goods producers more than offset somewhat weaker economic conditions among nondurable goods manufacturers,” Goss said. “Nondurable goods producers in the state have increased output by expanding hours worked rather than hiring new workers. Telecommunications firms in the state continue to experience weak business conditions.”
Goss calculates Business Conditions Indexes for Colorado, Utah and Wyoming based on the results of monthly surveys of supply managers in the three states. Reading range from 0 to 100. Readings above 50 signal expanding economic conditions for the next three to six months.
In Colorado, the index slumped in July on substantially lower component readings for new orders at 53.2 (down 16.6) and employment at 60.2 (down 20). The reading for production or sales climbed 11.5 points to 56.7.
The combined Business Conditions Index for the mountain states of Colorado, Utah and Wyoming edged up three-tenths in July to 58.6.
The latest reading reflected lower component readings for new orders at 53.3 and production or sales at 55.8., but a higher reading for employment at 61.1.
Goss said payrolls in the three-state region have increased at an annual rate of 1.3 percent, about the same as the rest of the United States. However, businesses in the region continue to increase output by extending hours rather than hiring new employees. “While I expect job growth to improve in the second half of 2010 for the region, the upturn will be quite timid by historical standards,” he said.
While 36 percent of supply managers responding to the July survey said they expect to increase hiring in the second half of 2010, 11 percent said they anticipate layoffs. Last year at this time, 44 percent of survey respondents expected layoffs in the coming six months.
A measure of confidence among supply managers in the three states jumped more than seven point in July to 62.6. Supply managers also reported increasing inventories of raw materials and supplies, pushing up the inventory index nearly 10 points to 67.4.
The reading for prices paid, a measure of wholesale inflation, fell more than 10 points to 65.4, but the index has remained above growth-neutral 50 for 13 out of the past 14 months.