May 2012 Mountain States Economy
Mountain States’ Leading Economic Indicator Sinks Again:
Negative Fallout from Europe
May survey results at a glance:
- Leading economic indicator declines for the month.
- Approximately 26 percent report negative fallout from European economic turmoil.
- New export orders decline for the month.
- Inflation cools significantly for the month.
For Immediate Release: June 1, 2012
Denver, CO – For the 31st straight month, the overall index for the Mountain States region, a leading economic indicator for the three-state area of Colorado, Utah and Wyoming, advanced above growth neutral 50.0. The national index has risen above growth neutral for 33 consecutive months (www.ism.ws) but has remained lower than the regional reading.
Overall Index: The overall index, or Business Conditions Index, which ranges between 0 and 100, declined to 56.0 from 58.8 in April and 62.6 in March. An index of 50.0 is considered growth neutral. The overall index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time. This is the same methodology used by the national Institute for Supply Management.
“The businesses that we survey continue to benefit from healthy farm and energy income and exports in early 2012. However, recent strong gains in the value of the U.S. dollar have reduced energy and farm commodity prices and additionally made U.S. goods less competitively priced abroad. This has and will continue to soften economic growth in the region. At this point in time, growth will still be positive but somewhat lower. Technology firms, especially those dependent on international sales will experience somewhat slower growth in the next 3 to 6 months,” Goss Institute for Economic Research Director Dr. Ernie Goss said today.
This month supply managers were asked the impact of European economic problems on their firm. More than one in four, or 26.3 percent reported negative fallout from Europe’s problems. “Although exports to Europe are relatively small for most firms in the region, the impacts via the strengthening of the dollar are considerable. On a positive note, as the Euro has weakened, so have the prices of supplies from Europe,” said Goss.
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).
Employment: The May employment index advanced to 62.9 from 62.2 in April. “In manufacturing, durable goods producers are adding jobs at a much faster pace than non-durable goods manufacturers. Firms linked to energy and agriculture continue to adds jobs, but the rate of growth will diminish in the months ahead due to a stronger dollar which lowers energy and farm commodity prices,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, fell to 65.7 from April’s 72.3. “The strengthening U.S. dollar and slower global growth are putting downward pressure on our inflation gauge. I expect the problems in Europe and waning inflationary pressures to push the Federal Reserve to take additional actions in the months ahead. This month, we asked supply managers to project price hikes for the next six months for inputs that they buy. Supply managers anticipate that prices will grow by 2.7 percent for the next six months. Approximately 4 percent of supply managers expect price declines for inputs over this same period of time,” said Goss.
Business Confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, declined to 58.9 for May from 60.7 in April. “Recent negative reports on U.S. economic and job growth are clearly hurting the economic outlook of supply managers that we surveyed in May,” said Goss.
Inventories: In another signal of an improving outlook, supply managers in the three-state region added to inventories of raw materials and supplies for the month. The index expanded to 56.7 from April’s 55.6. “This is the 30th straight month that we have recorded inventory growth. Healthy inventory growth signals that supply managers expect production expansions in the months ahead,” said Goss.
Trade: May’s new export index slumped to 48.4 from April’s 55.9. May’s import index slipped to 53.7 from 57.4 in April. “Gains in the value of the U.S. dollar and weaker global growth are suddenly damaging exports from the region. The economic turmoil in Europe and slower Asian economic growth are becoming headwinds for the regional economic stronger,” said Goss.
Other Components: Other components used to calculate the overall index for May were new orders at 53.0, down from April’s 58.5; production or sales at 52.9, down 60.8; and delivery lead time at 54.7, down from 57.1 in April.
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 overall index is a mathematical average of new orders, production or sales, employment, inventories and delivery lead time.
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: The state’s leading economic indicator, based on a monthly survey of supply managers in the state, slipped to a still healthy level for May. The overall index, termed the Business Conditions Index, for May sank to 55.7 from April’s 58.9. Components of the Business Conditions Index for May were new orders at 56.0, production or sales at 54.9, delivery lead time at 50.8, inventories at 51.8, and employment at 64.8. “Durable goods producers are outperforming non-durable goods manufacturers in the state. Heavy manufacturers are adding employees at the same time that they are expanding the hours worked of their current workforce,” said Goss.
Utah: The state’s overall index, or Business Conditions Index, a leading economic indicator, once again moved above growth neutral 50.0. Based on the monthly survey of the membership of ISM-Utah (www.napmutah.org), the overall index dipped to a still solid 55.3 from 56.0 in April. Components of the Business Conditions Index for May were new orders at 53.4, production or sales at 54.5, delivery lead time at 55.8, inventories at 52.8, and employment at 60.0. “Durable goods producers continue to experience healthy expansions in economic activity. Metal producers, in particular, are detailing upturns in jobs and overall business activity,” said Goss.
Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for the 31st straight month. The index, termed the Business Conditions Index, slumped to 56.5 from 68.5 in April. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months point to slower economic growth for the state economy for the next 3 to 6 months. Components of the overall index for May were new orders at 52.6, production or sales at 49.0, delivery lead time at 64.8, inventories at 59.4, and employment at 56.7. “Not only is job growth slowing in the state, businesses are not expanding the hours worked for current employees as they have earlier in the year. Firms tied to the state’s energy sector are experiencing much softer growth than they did earlier in the year. I expect uncertain national energy policies and weaker energy commodity prices to further slow growth in the state’s economy in the months ahead,” said Goss.
June results will be released on the first business day in July or July 2.