Mountain States Leading Economic Indicator Heads Higher:
But Business Confidence Drops for June

June survey results at a glance:

For Immediate Release: June 1, 2010

Denver, CO – For a ninth 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 June climbed to a healthy 58.3 from 57.9 in May. The index is pointing to improving economic conditions for the three-state region composed of Colorado, Utah and Wyoming in the months ahead.

“While there remains weakness in the consumer sector, our survey of manufacturers and value added service companies over the past several months signals very positive growth for the regional economy into the fourth quarter of this year.”

“The financial problems in Europe have been a real concern for the Federal Reserve’s Open Market Committee, which sets interest rates. Our survey indicates that the European turmoil has had little impact on business expansion in the Mountain States region. It has increased the value of the dollar and made U.S. manufactured goods and farm products less competitive abroad. However this negative impact has been more than offset by the domestic expansion driven by inventory restocking,” 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.

The June employment index rose to a solid 56.7 from May’s 54.2 and April’s 54.8. Even as the hiring picture has improved, the pay outlook has not. “Nine percent of supply mangers expect a pay reduction for the next year, while 40 percent anticipate no change in pay for the next year,” said Goss.

“The region has been adding jobs over the past several months. Even though the region will continue to add jobs, I expect unemployment rates for each of the three states in the region to remain at elevated levels as firms remain overly cautious about hiring new workers. Cap-and- trade, health care reform, rising taxes and European economic turmoil are all generating significant caution among businesses in the region in terms of their hiring decisions,” Goss said today. 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, advanced to a robust 76.0 from May’s 72.4. This is the twelfth time in the past thirteen months that the regional inflation gauge has climbed above growth neutral. National and regional surveys of supply managers over the past several months indicate that the Fed should not ignore the potential for elevated inflationary pressures. Record-low interest rates from the Federal Reserve, combined with record federal government deficit spending, are creating price bubbles in various commodities and will, in my judgment, ultimately contribute to inflationary pressures at the consumer level – above the Fed’s goal of 1.75 percent to 2 percent. Even so, I do not think the Fed will begin raising interest rates before the last quarter of this year,” said Goss.

Looking ahead six months, economic optimism, captured by the June confidence index, dropped to 55.4 from 58.7 in May. “While the economic turmoil in Europe has failed to deter the outlook for the Mountain States economy six months down the road, supply managers’ economic optimism has weakened in recent months,” said Goss.

Trade numbers deteriorated for June. 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 46.1 from May’s 52.1 and April’s 62.0. June imports rose to 54.8 from 49.6 in May. “I expect the strong dollar to continue to restrain exports and stimulate imports,” said Goss.

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 June inventory index dipped to a healthy 57.6, down from May’s 60.1. “This is the seventh straight month that we have recorded inventory restocking after more than one year of inventory reductions. The growth in inventories has been a positive and significant factor pushing the regional economy higher. However, we need to see an increase in the pace of consumer buying before we can be assured that the economy will not dip back into a recession. Inventory buildups are not the basis for sustained economic growth.”

“This month we asked supply managers about expected changes in inventory levels in the months ahead. Almost one-third, or 32 percent anticipate increases in inventory levels while 18 percent expect to reduce inventory declines. This is certainly not indicative of an economic pullback,” said Goss.

Other components of the June Business Conditions Index were new orders at 55.7, down from May’s 61.4; production or sales at 61.0, up from 56.2; and delivery lead time at 57.6, down slightly from 57.7.

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 a ninth straight month, the state’s leading economic indicator rose above 50.0. The June index, based upon a survey of supply managers in the state, expanded to 68.4 from 56.8 in May. Components of the overall index for June were new orders at 69.8, production or sales at 45.2, delivery lead time at 63.4, inventories at 81.8, and employment at 80.2. “The state’s unemployment rate has inched higher even as firms have stepped up their hiring. Manufacturers, both durable and non-durable, continue to expand the hourly work week and add new workers,” 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 slipped to a still healthy 57.9 from May’s 59.4. Components of the overall index for June were new orders at 56.5, production or sales at 66.8, delivery lead time at 59.3, inventories at 53.4, and employment at 53.4. “Both durable and non-durable producers are experiencing upturns in business activity. 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 an eighth straight month. The Wyoming Business Conditions Index for June climbed to 57.2 from May’s 55.9. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months indicate point to an expanding state economy into the fourth quarter of this year. Components of the overall index for June were new orders at 49.0, production or sales at 46.6, delivery lead time at 57.6, inventories at 64.6, and employment at 68.1. “The state’s large mining and natural resources industry is experiencing improving economic conditions according to our survey. Manufacturers in the state continue to increase the length of the hourly work week with the resultant muted hiring. I expect manufacturing job growth to improve in the second half of 2010 but at a somewhat restrained pace,” said Goss.