August Mountain States Economy
Denver, CO – Much like the national ISM results that came out Monday morning , the overall index for the Mountain States region for August, a leading economic indicator for the three-state area of Colorado, Utah and Wyoming, stood at a level pointing to growth for the next 3 to 6 months.
Overall Index: The overall index, or Business Conditions Index, which ranges between 0 and 100, declined to 53.6 from 55.1 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.
“Even though growth will continue for the remainder of 2013, it will be at a slower pace. Mining firms and companies supporting this sector are experiencing pullbacks in economic activity. On the other hand, construction activity continues to trend higher and add to overall regional growth,” 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.
Employment: The monthly hiring gauge increased for the month. The index rose to 54.1 from July's 49.4. “Manufacturers linked to agriculture and energy are growing at a slower pace that this time last year. On the other hand, companies tied to construction are experiencing healthy growth. Food processing firms are also expanding at a solid pace,” said Goss.
Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, soared to 59.2 from 52.5 in July. “Our survey as well as national surveys is indicating that the period of benign inflation may be ending. Weakness in inflationary pressures has provided support for the Federal Reserve's record expansionary money policies including its $85 billion monthly bond buying program, quantitative easing 3 (QE3). I expect upturns in inflationary pressures and asset price bubbles to push the Fed to begin reducing or tapering QE3 at the September 17-18 meetings of its interest rate setting committee (FOMC). This will mean that interest rates will move somewhat higher in the weeks and months ahead,” said Goss.
Business Confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, fell to 49.4 from 52.1. “International political tensions, higher interest rates and global economic weakness cooled economic optimism for August,” said Goss.
The federal spending sequestration is having very little impact on the outlook.
“The last six months, we have asked supply managers how the federal spending sequestration was affecting their company. In the August survey, approximately 57.1 percent of supply managers indicated that the cuts have had an impact on their company to date. This is up from 38.5 in July and 30.0 percent in June. Thus, the negative impacts according to supply managers are rising,” said Goss.
Inventories: In another signal of lower economic confidence, supply managers in the three-state region reduced inventories of raw materials and supplies for the month. The index declined to 49.4 from 58.7 in July. “This is the first pullback in inventory levels after 44 straight months of gains. Healthy inventory growth normally signals that supply managers expect production and/or sales advances in the months ahead and is consistent with economic growth,” said Goss.
Trade: The new export order reading for the Mountain States region decreased to 50.9 from July's 51.8. The import reading for the month expanded to a weak 49.2 from 48.4 in July. “Economic pullbacks and slowdowns in Asia and Europe along with increases in the value of the U.S. dollar are having clear negative impacts on sales abroad. At the same time, slower regional growth pushed the import reading lower,” reported Goss.
Other Components: Other components used to calculate the overall index for August were new orders at 53.5, unchanged from July; production or sales at 52.9, down from 54.3 in July; and delivery lead time at 57.9 down from last month's 59.2.
The Institute for Supply Management, formerly the Purchasing Management Association, 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 ISM-Utah and NAPM-Western Wyoming.
Colorado: The state’s leading economic indicator, based on a monthly survey of supply managers in the state, stood above growth neutral for August. The overall index, termed the Business Conditions Index, climbed to 56.5 from 54.8 in July. Components of the Business Conditions Index for July were new orders at 52.2, production or sales at 53.7, delivery lead time at 79.7, inventories at 43.5, and employment at 53.3. “The state is adding jobs at an annual pace exceeding 2.0 percent, or well above the region and nation. Growth in manufacturing and mining continue at a slow pace while businesses tied to construction are experiencing upturns in business activity,” 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.ismutah.org), the overall index for August fell to 51.9 from 54.3 in July. Components of the Business Conditions Index for August were new orders at 49.9, production or sales at 51.3, delivery lead time at 53.7, inventories at 54.1, and employment at 50.3. “Durable and non-durable manufacturing firms in the state are growing at a healthy pace offsetting weaker business conditions among firms tied to agriculture and energy," 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 46 straight months. The index, termed the Business Conditions Index, sank to 54.5 from 55.9 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 in the state economy for the next 3 to six months. Components of the overall index for August were new orders at 57.6, production or sales at 52.9, delivery lead time at 57.1, inventories at 49.4, and employment at 55.6. “Mining and firms supporting mining in Wyoming are reducing jobs and hours. This pullback is being offset by expansions among manufacturing firms in the state,” said Goss.
September results will be released on October 1, the first business day in October.