Posted: July 08, 2013
Mountain states outpace the nation
Looks like more growth aheadBy Ernest Goss
Similar to surveys over the past several months, the overall index for the Mountain States region for June, a leading economic indicator for the three-state area of Colorado, Utah and Wyoming, stood at a very healthy reading. The June index from the survey of supply managers, as in past months, continues to exceed the national index (www.ism.ws) and points to regional growth significantly exceeding that of the U.S.
Overall Index: The overall index, or Business Conditions Index, which ranges between 0 and 100, declined to 58.6 from 61.0 in May. 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.
Declines in business activity for the region’s large energy sector were more than offset by expansions among durable and non-durable goods manufacturers, particularly those linked to the region’s rapidly expanding construction industry.
A five percent increase in the value of the U.S. dollar for 2013 has been an important factor slowing industries producing commodities sold in international markets. I expect past surging growth to slow in the months ahead.
Employment: The employment index plunged for the month, but remained above growth neutral. The hiring gauge declined to 52.3, down from May’s much stronger 57.1.
Even though the index fell for the month, companies in the region continue to add jobs at a much faster pace than businesses in other parts of the nation.The region is now adding jobs at roughly twice the rate as the U.S. Our regional survey and national surveys of supply managers indicate that this gap is likely to remain for the next 3 to 6 months with the region adding jobs at an annual pace of two percent and down from the three percent pace recorded in the first half of 2013.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, sank to 55.9 from 59.5 in May. Wholesale inflationary pressures continue to move lower in the region. A 5 percent increase in the value of the U.S. dollar in 2013 and slower global economic growth have placed downward pressure on inflation at the wholesale level. Not only is wholesale inflation tame, it is headed lower
Declining inflationary pressures are apt to push the Federal Reserve to the sidelines in terms of altering their bond buying program any time soon. I do not expect the Fed to begin tapering their bond buying until the end of 2013 at the earliest.
Business Confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, fell to 54.3 from May’s 61.0. The rapid upturn in interest rates pushed supply managers’ economic outlook lower. Furthermore, the federal spending sequestration is having a slightly larger impact on supply managers’ economic outlook.
The last four months, we have asked supply managers how the federal spending sequestration was affecting their company. In the June survey, approximately 70 percent of supply managers indicated that the cuts have had no impact on their company to date. Approximately 25 percent reported only modest impacts from sequestration, while the remaining 5 percent indicated significant and negative impacts.
Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month.The index rose to 67.7 from 65.6 in May.
We have recorded inventory growth for 43 straight months. Healthy inventory growth normally signals that supply managers expect production and/or sales advances in the months ahead and is consistent with economic growth.
Trade: The new export order reading for the Mountain States region decreased to 53.6 from May’s 57.3. The import reading for the month dipped to 53.1 from May’s 56.2. Despite this year’s rise in the value of the U.S. dollar and slowing global growth, export orders continue to grow, but at a reduced rate.
The decline in the price of foreign goods failed to significantly boost purchases of goods from abroad. Almost half, or 47.6 percent of survey participants, reported that global economic conditions were the most important factor affecting their company’s economic prospects.
Other Components: Other components used to calculate the overall index for June were new orders at 57.0, down from 61.4 in May; production or sales at 55.3, down from last month’s 60.6; and delivery lead time at 60.6, higher than May’s 56.9.
Colorado: The state’s leading economic indicator, based on a monthly survey of supply managers in the state, moved well above growth neutral for June. The overall index, termed the Business Conditions Index, declined to a healthy 58.7 from 62.8 in May.
Components of the Business Conditions Index for June were new orders at 54.3, production or sales at 49.2, delivery lead time at 634, inventories at 73.8, and employment at 52.5. The increase in the value of the U.S. dollar and the global economic slowdown have resulted in pullbacks in the state’s energy sector.
The state’s construction industry, on the other hand, continues to expand at a very healthy pace, positively affecting both manufacturing and non-manufacturing firms in the state. Durable goods manufacturers, including metal producers, are experiencing a slowdown in recent growth.
Ernest Goss is the director of the Goss Institute for Economic Research, which 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. Find out more at www.ernestgoss.com or www.outlook-economic.com.