August 2012 Mountain States Economy
Mountain States’ Leading Economic Indicator Expands:
Inflation Gauge Higher
August survey results at a glance:
- Leading economic indicator expands to healthy level.
- Inflation gauge continues to advance.
- New export orders remain weak.
- Business confidence wanes again.
For Immediate Release: September 4, 2012
Denver, CO – For the 34th 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. After moving above growth neutral for 34 consecutive months, the national PMI slumped below growth neutral for June and July (www.ism.ws).
Overall Index: The overall index, or Business Conditions Index, which ranges between 0 and 100, advanced to a healthy 59.0 from 56.1 in July. 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.
“Construction in Colorado, energy in Colorado and Utah and manufacturing in all three states pushed readings higher for August. I expect the national numbers that come out later this morning to be considerably weaker than our regional indices,” 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).
Employment: The employment index once again climbed above growth neutral. The hiring gauge expanded slightly to 59.2 from July’s strong 59.0. “While the region has been adding jobs at a healthy pace, the current level of employment for the region is down by almost 94,000 jobs, or 2.4 percent, from pre-recession levels. Based on 2012 experience, it will take another two years before the region recaptures all of the jobs lost as a result of the recession,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, rose to 65.9 from July’s 62.8. “This month, we asked supply managers by how much they expected prices of products and services they purchase to increase in the next six months. On average, a 2.7 percent increase, or 5.4 percent annually, is anticipated. Both the direction and magnitude of price increases are too high to be ignored by the Federal Reserve in my judgment. The period of very benign inflation may be ending. This could certainly constraint the Fed as they attempt to stimulate the economy with another round of bond buying (QE3),” said Goss.
Business Confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, declined to 46.7 from July’s 47.9. “Supply managers, much like the entire business sector, remain very pessimistic regarding future economic conditions. The drought, the fiscal cliff, the elections, and European economic turmoil are all weighing on economic confidence,” said Goss.
Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month. The index expanded to a surprisingly strong 65.6 from 62.8 in June. “We have recorded inventory growth for 33 straight months. Healthy inventory growth signals that supply managers expect production expansions in the months ahead. I expect the index to decline in the months ahead as with waning confidence,” said Goss.
Trade: The new export order reading for the Mountain States region increased to a still weak 48.2 from July’s 46.5, while August imports climbed to 54.6 from 50.9 in July. “Weaker global growth and the rising value of the dollar making U.S. goods less competitive abroad pushed the export reading lower. At the same time, regional growth helped maintain the import reading above growth neutral for the month,” said Goss.
Other Components: Other components used to calculate the overall index for August were new orders at 53.5, up from July’s 51.9; production or sales at 61.1, an upturn from 54.7; and delivery lead time at 55.7, up from 52.2 in July.
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, bounced higher for August. The overall index, termed the Business Conditions Index, for August rose sharply to 59.0 from July’s 49.6. Components of the Business Conditions Index for August were new orders at 58.6, production or sales at 59.3, delivery lead time at 58.3, inventories at 56.1, and employment at 62.5. “Construction employment has increased by 5.2 percent over the past year. This has been a significant stimulant to the overall state economy. Both durable and non-durable goods producers are experiencing healthy growth in sales, new orders and employment,” 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 for August climbed to 60.6 from July’s 55.0. Components of the Business Conditions Index for August were new orders at 53.4, production or sales at 66.7, delivery lead time at 61.8, inventories at 67.9, and employment at 53.2. “Expansions for August were strong in energy and energy linked firms and manufacturing firms in the state. Utah has lost more than 30,000, or 2.4 percent, of its employment since the beginning of the national recession. However, the state has made solid progress in 2012 in boosting employment. Even so, on its current pace, it will take more than two years to return to pre-recession level employment,” said Goss.
Wyoming: The state’s leading economic indicator from a survey of supply managers in the state has now climbed above growth neutral 50.0 for 34 straight months. The index, termed the Business Conditions Index, sank to 54.3 from 60.4 in July. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months point to positive but slowing economic growth for the state economy for the next 3 to 6 months. Components of the overall index for August were new orders at 50.8, production or sales at 50.5, delivery lead time at 50.0, inventories at 60.0, and employment at 60.2. “Growth in the state’s large mining industry is clearly slowing. This is negatively affecting durable goods manufacturing in the state. On the other hand, non-durable goods producers report healthy economic activity,” said Goss.
September results will be released on October 1, the first business day in October.
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