Mountain States Leading Economic Indicator Above Growth Neutral:
Commodity Price Bubbles Surfacing

May survey results at a glance:

• Leading economic indicator in healthy growth range.
• Supply managers reported significant commodity price bubbles.
• More than 36 percent of respondents reported negative impacts for their firm from Europe’s economic turmoil.
• Approximately three-fourths of the purchasers expect any new cap and trade law to increase prices.
• Trade numbers weakened for the month.

For Immediate Release: June 1, 2010

Denver, CO – For an eighth straight month, the overall index for the Mountain States region, a leading economic indicator for the three-state area, moved above growth neutral 50.0. The overall index, or Business Conditions Index, for May dipped to a still healthy 57.9 from 58.8 in April. The index is pointing to improving economic conditions for the three-state region composed of Colorado, Utah and Wyoming in the months ahead.

The May employment index slipped to a still solid 54.2 from April’s 54.8 but was higher than March’s 53.9. “The financial turmoil in Europe is a threat to the economic expansion underway. It has increased the value of the dollar, which has made U.S. manufactured goods and agricultural products less competitive abroad. The flight to the safety of U.S. Treasury bonds, if sustained, will have significant and negative impacts on agriculture income and economic prospects for industries with linkages to agriculture. This month we asked supply managers how the European economic problems are affecting their firms. Almost 37 percent of respondents reported negative impacts for their firm from Europe’s turmoil. The remaining 63 percent indicated little or no impacts to date. In my judgment, more negative impacts will surface if the dollar continues to appreciate against the Euro,” Goss Institute for Economic Research Director Dr. Ernie Goss said today. The Goss Institute conducts the monthly survey for Supply Management Institutes in the three states comprising the Mountain States region. Goss also directs Creighton University’s Economic Forecasting Group and is the Jack A. MacAllister Chair in Regional Economics (http://www.ernestgoss.com/aboutus.html).

Rebounding prices have accompanied the regional economic improvements. The prices-paid index, which tracks the cost of raw materials and supplies, dipped slightly to a still robust 72.4 from 72.9 in April. This is the eleventh time in the past twelve months that the regional inflation gauge has climbed above growth neutral.

“Even as government measures of inflation continue to indicate little inflationary pressures at retail and wholesale levels, supply managers in our survey report significant price bubbles for commodity prices. Record-low interest rates from the Federal Reserve, combined with record federal government deficit spending, are creating price bubbles in various commodities and will ultimately contribute to inflationary pressures at the consumer level – above the Fed’s goal of 1.75 percent to 2 percent. Even though I think the Fed should begin raising rates at its June meetings, I see no rate change before the fourth quarter of 2010,” said Goss.

This month supply managers were asked how a federal cap and trade law would affect the prices of products they purchase. Approximately 75 percent of the purchasers expect any new law to increase prices with the remaining 25 percent anticipating little or no impact on prices.

Looking ahead six months, economic optimism, captured by the May confidence index, dropped to 58.7 from 63.8 in April and 60.3 in March. “The economic turmoil in Europe has failed to deter the outlook for the Mountain States economy six months down the road,” said Goss.

Trade numbers deteriorated for May. The upturn in the value of the dollar, making U.S. goods less competitively priced abroad, and the economic slowdown in Europe reduced the new export orders index to 52.1 from April’s 62.0 and March’s 57.3. May imports declined to 49.6 from April’s 53.0 and March’s 52.2.

As another measure of economic confidence, supply managers in the three-state region added to inventories of raw materials and supplies for the month. The May inventory index advanced to 60.1 from 57.2 in April and 56.1 and March. “This is the sixth straight month that we have recorded inventory restocking after more than one year of inventory reductions,” said Goss.

Other components of the May Business Conditions Index were new orders at 61.4, down from April’s 61.9; production or sales at 56.2, down from 60.2; and delivery lead time at 57.7, down from 59.6.

The Institute for Supply Management, formerly the Purchasing Management Association, has been formally surveying its membership since 1931 to gauge business conditions (www.ism.ws). The Goss Institute uses the same methodology as the national survey. The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in Colorado, Utah, and Wyoming since 1994 to produce leading economic indicators of the Mountain States region. The Goss Institute assumed operation of the survey in August of 2008, working with NAPM-Utah (www.napmutah.org) and NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm).

Colorado: For an eighth straight month, the state’s leading economic indicator rose above 50.0. The May Business Conditions Index, based upon a survey of supply managers in the state, slumped to a still healthy 56.8 from April’s 73.5. Components of the overall index for May were new orders at 39.6, production or sales at 40.3, delivery lead time at 76.8, inventories at 63.6, and employment at 63.5. “Even as the state’s manufacturing sector has begun to expand, Colorado’s energy sector has continued lose jobs and detail pullbacks in economic activity. While our survey results are clearly pointing to improving economic conditions in the state, I expect volatility in energy prices and drag from the construction industry to restrain growth in the state. Colorado has lost almost 150,000 jobs since the beginning of the recession. It is going to take several years for the state to recover these lost jobs,” said Goss.

Utah: The state’s Business Conditions Index, a leading economic indicator, once again climbed above growth neutral 50.0. Based on the monthly survey of the membership of NAPM-Utah (www.napmutah.org), the overall index advanced to 59.4 from 58.9 in April and 55.9 in March. Components of the overall index for May were new orders at 66.6, production or sales at 62.1, delivery lead time at 56.8, inventories at 60.4, and employment at 51.0. “Since the beginning of the national recession, Utah has lost more than 77,000 jobs. The state began adding jobs early this year. Based on the recovery from the 2001 recession and the current economic expansion underway, I expect the state to fully reclaim the lost jobs by January 2012,” said Goss.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for a seventh straight month. The Wyoming Business Conditions Index for May dipped to a still healthy 55.9 from 58.7 in April and 57.5 in March. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months indicate that the state’s economy is on the road to recovery. Components of the overall index for May were new orders at 48.0, production or sales at 43.2, delivery lead time at 55.2, inventories at 59.3, and employment at 73.6. “Contrary to Colorado’s energy sector, we are recording improving economic conditions in Wyoming’s energy sector. Unfortunately, volatility related to the value of the dollar and changes in U.S. energy policy will dictate when the state regains the 12,000 jobs that it has lost since January 2009. I expect Wyoming to recover those lost jobs by the first quarter of 2012,” said Goss.

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