Manufacturing and construction push Colorado business index to two-year high

Ernie Goss

A monthly index tracking business conditions in Colorado has climbed to its highest level in two years on gains in the manufacturing and construction sectors.

The Business Conditions Index rose 4.6 points in May to 62.8. With gains in four out of the last five months, the index has increased to its highest level since it stood at 62.9 in May 2011.

“New orders and production are growing faster than jobs in the manufacturing sector. To accommodate this growth, manufacturers in the state are expanding the hourly work week for current employees much faster than jobs,” said Ernie Goss, director of the Goss Institute for Economic Research in Denver.

“On the other hand, businesses tied to the state’s rapidly advancing construction industry continue to experience very healthy business conditions,” Goss added.

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. Readings range from 0 to 100. Readings above 50 forecast expanding economic conditions over the next three to six months.

In Colorado, the overall index reading reflecting a higher component reading for new orders at 59.1. Readings were slightly lower for production or sales at 52.8 and employment at 55.

The combined Business Conditions Index for the three mountain states rose 2.7 points to 61 in May. With gains in each of the last five months, the index matches the reading posted in October.

“Durable and nondurable goods manufacturers in the region, particularly those linked to the region’s rapidly expanding construction industry, pushed the overall index higher,” Goss said. “Even though agricultural prices have softened recently, companies with ties to agriculture continue to experience healthy, but somewhat reduced, economic growth.”

The overall reading for the mountain states reflected higher component readings for new orders at 61.4, production or sales at 60.6 and 57.1 for employment.

“The region is now adding jobs at more than twice the pace of the nation, according to U.S. Bureau of Labor Statistics data,” Goss said.

“Our regional survey and national surveys of supply managers indicate that this gap is likely to remain for the next three to six months with the region adding jobs at an annual pace above 3 percent. As job prospects have improved, so has wage growth. Supply managers expect wages to advance by 2.7 percent over the next year.”

A component of the index tracking confidence among supply managers in the mountain states rose 2.8 points to 61 in May. “The very significant turnaround in the region’s housing sector as well as healthy growth in businesses tied to energy and agriculture have boosted the economic outlook of supply managers,” Goss said.

More than 68 percent of supply managers responding to the surveys upon which the May index was based said federal spending cuts under sequestration have yet to affect their companies.

A component of the index tracking inventories of raw materials and supplies jumped five points to 65.6 in May for a 42nd consecutive month of growth.

The reading for prices paid for raw materials and supplies dropped 6.2 points to 59.5. “Inflationary pressures at the wholesale level are definitely trending downward,” Goss said.

The reading for new export orders rose 5.2 points to 57.3, while the reading for imports fell 1.7 points to 56.2.

In Utah, the Business Conditions Index rose 2.1 points to 59.9 in May on higher component readings for new orders at 60.4 and production or sales at 64.9. The reading for employment remained unchanged at 56.8.

In Wyoming, the Business Conditions Index advanced 3.6 points to 67.8 in May on higher component readings for new orders at 72.6 and employment at 60.9. The reading for production or sales slipped six-tenths of a point to 59.9.