Economist Goss Reports Mountain States’ Leading Economic Indicator Slips:

Creighton University's Ernie Goss will guest Wednesday, August 8, 2012 at 7:37AM MDT to discuss his latest Mountain States Economic Report in detail:

Drought Weighs on Confidence

July survey results at a glance:

·         Leading economic slips.

·         Export orders weaken significantly.

·         Drought pulls business confidence lower.

·         Price pressures remain constrained.

For Immediate Release: August 1, 2012

Denver, CO – For the 33rd 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 declined to 49.7 in June (www.ism.ws).

Overall Index:  The overall index, or Business Conditions Index, which ranges between 0 and 100, slipped to a healthy 56.1, down from 57.2 in June.  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.

“Almost 80 percent of the 116 counties in the three-state region have been declared by the USDA as drought disaster areas.  However at this point in time, weather conditions have yet to adversely affect companies in our survey, although the readings for Colorado were considerably lower than for Utah and Wyoming.  Only 14 percent of the firms reported that drought conditions had increased the costs of inputs for their companies’ sales, while almost none reported impacts on company sales.  I expect this to change in the months ahead, pulling the overall index lower.  A stronger dollar, making U.S. goods less competitively abroad, will also dampen growth in the months ahead,” 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 slipped to a still healthy 59.0 from 63.0 in June.  “The Mountain States region continues to outperform the U.S. in terms of job growth.  However, I expect that advantage to close in the months ahead as regional growth tied to exports and energy weakens,” said Goss.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, advanced to a moderate 62.8 from June’s 62.4.  “Slower economic growth, European economic turmoil, and a stronger dollar are all contributing to moderate inflationary pressures.  This month we asked supply managers to project price increases for the next six months for products they buy.  On average, supply managers’ six month price growth rose to 2.8 percent from 2.2 percent in April when we asked the same question,” said Goss.

Business Confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, declined to 47.9 from 53.4 in June and 58.9 in May.  “European economic turmoil, the drought and the ‘fiscal cliff’ all served to pushed the economic outlook into negative territory,” 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 62.8 from June’s 60.9.  “This is 32 straight months that we have recorded inventory growth.  Healthy inventory growth signals that supply managers expect production expansions in the months ahead.  I expected the index to decline in the months ahead as with waning confidence,” said Goss.

Trade:  July’s export reading for the Mountain States region slumped to 46.5 from 47.5 in June, while July imports decreased to 50.9 from 52.8 in June.  “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 July were new orders at 51.9, down from June’s 53.8; production or sales at 54.7, up from 53.8; and delivery lead time at 52.2, down from 54.5 in June.

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, plummeted for July.  The overall index, termed the Business Conditions Index, for July slumped to 49.6 from 58.6 in June.  Components of the Business Conditions Index for July were new orders at 51.0, production or sales at 53.5, delivery lead time at 43.3, inventories at 55.4, and employment at 59.0.  “With 62 of 64 counties in the state suffering through significant to severe drought conditions, it was not surprising to record an overall index below growth neutral.  While food production, both on the farm and in the factory, are not a substantial part of the state economy, the backward linkages to other businesses in the state are important.  As a result, I expect the drought to continue to weigh on the state economy in the months ahead,” 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 July dipped slightly to 55.0 from June’s 55.5.  Components of the Business Conditions Index for July were new orders at 50.9, production or sales at 56.2, delivery lead time at 53.9, inventories at 59.2, and employment at54.7.  “With 20 of 29 counties in the state suffering through significant to severe drought conditions, it was surprising to record an overall index in the growth range.  While food production accounts for only one in ten manufacturing jobs, and farm income is a relatively small share of the overall state economy, the backward linkages to other businesses in the state are important.  As a result, I expect the drought to weigh on the state economy in the months ahead,” said Goss.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state has now climbed above growth neutral for 33 straight months.  The index, termed the Business Conditions Index, expanded to 60.4 from June’s 55.7.  Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months point to positive economic growth for the state economy for the next 3 to 6 months.  Components of the overall index for July were new orders at 49.4, production or sales at 49.7, delivery lead time at 66.8, inventories at 71.1, and employment at 64.9.  “With 10 of 23 counties in the state suffering through significant to severe drought conditions and pullbacks in energy production, it was surprising to record such a strong overall index.  While food production accounts for only one in 32 manufacturing jobs, and farm/ranch income is a relatively small share of the overall state economy, the backward linkages to other businesses in the state are important.  As a result, I expect the drought to weigh on the state economy in the months ahead,” said Goss.

August results will be released on September 4, the first business day in September.

For historical data and forecasts, visit our website at:

www.ernestgoss.com  or

www.outlook-economic.com

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