Posted: January 06, 2011
The economic sun shines on the Mountain states
There are better times on the horizonBy Ernest Goss
For the 15th 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.
According to surveys of supply managers over the past several months, including December's, the region will experience positive and expanding economic conditions in the months ahead.
Overall Index: The overall index, or Business Conditions Index, for December climbed to 57.6 from 56.0 in November. Regional firms with close ties to mining and durable goods manufacturing continue to report healthy and improving economic conditions. The weak U.S. dollar and the expanding global economy will push regional growth for the first half of 2011 well above the same period for 2010.
Employment: The December employment index slipped to 56.4 from November's 57.2. Even as economic growth in 2010 bounced higher, firms expanded their output by productivity gains and increases in hours worked for current employees. To expand output further, firms will begin to expand employment more robustly in the first half of 2011. I expect job growth to approach an annualized rate of 1.5 percent for the first half of the year with manufacturing and mining tied to international markets leading the way.
Wholesale Prices: The regional price gauge expanded to an inflationary 71.2 from 67.8 in November. The prices-paid index, which tracks the cost of raw materials and supplies, has now moved above growth neutral in eighteen of the past nineteen months. While rapid growth in the supply managers' inflation gauge has yet to show up in consumer prices, I forecast that to change significantly in 2011. This increase at the producer level will bolster consumer prices well above the Federal Reserve's target rate of 2.0 percent sometime in 2011. Likewise, I expect long term interest rates to grow rapidly in the first half of 2011 to compensate investors for rising inflation.
Business Confidence: Looking ahead six months, economic optimism, captured by the confidence index, advanced to 64.8 from November's 62.9. While the overall US. economy remains weak as gauged by unemployment rates, individual firms in the Mountain States region are experiencing solid improvements in business conditions. This has translated into a strong economic outlook in terms of sales but without accompanying rapid job creation thus far.
Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month, but at a much slower pace, with a December index of 50.6 from November's reading of 51.1. This is the 13th straight month that we have recorded inventory restocking after more than one year of inventory reductions during the economic downturn. A stronger sales outlook is pushing supply managers to add to inventories.
Trade: New export orders bounced higher for December, moving to 61.6 from 60.1 in November. Imports for December dipped to 54.2 from November's 56.3. The weaker U.S. dollar, making U.S. goods cheaper abroad and foreign goods more expensive in the U.S., is strengthening exports and slowing the growth in imports. I expect this trend to continue for 2011 with the global economic rebound adding to the influence of the weaker dollar.
Other Components: Other components of the December Business Conditions Index were new orders at 63.2, up from November's 59.0; production or sales at 59.1, up from 54.7; and delivery lead time at 58.7, up from 57.8 in November.
The Institute for Supply Management has been formally surveying its membership since 1931 to gauge business conditions. 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 and NAPM-Western Wyoming .
Colorado: The state's leading economic indicator, based on a monthly survey of supply managers in the state, bounced higher for December. The December overall index, termed the Business Conditions Index, increased to 58.1 from November's 53.7. Components of the overall index for December were new orders at 73.3, production or sales at 73.4, delivery lead time at 52.9, inventories at 42.5, and employment at 54.9. In terms of job growth, 2010 was not a good year for Colorado with the state's employment level growing at approximately one fourth the pace of the U.S. Recent surveys point to improving economic conditions for the first half of 2011 with industries with close ties to energy and agriculture pushing overall state growth higher.
Utah: The state's Business Conditions Index, a leading economic indicator, once again climbed above growth neutral 50.0. The overall index climbed to 57.4 from 56.1 in November. Components of the overall index for December were new orders at 62.4, production or sales at 60.1, delivery lead time at 60.9, inventories at 50.7, and employment at 53.0. For 2010, Utah's employment growth exceeded that of the U.S. with mining and durable goods manufacturing leading the way. Recent survey results point to improving economic conditions for the first half of 2011 with more than 18,000 jobs added for the six month period, a pace more than twice that of the same period in 2010.
Wyoming: The state's leading economic indicator from a survey of supply managers in the state climbed above growth neutral for the fourteenth straight month. The Wyoming Business Conditions Index for December advanced to 57.2 from 54.4 in November. Surveys over the past several months point to an expanding state economy for the first half of 2011. Components of the overall index for December were new orders at 63.2, production or sales at 49.9, delivery lead time at 46.9, inventories at 63.0, and employment at 62.8. Wyoming's 2010 job growth was almost double that of the nation. Based on recent surveys, I expect this gap to continue for the first half of 2011 with the state adding almost 4,000 jobs for the six month period.
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.