July Mountain States Economic Report

July survey results at a glance: \

~~By Professor Ernie Goss~~

·Denver, CO – Much like the national ISM results that came out this morning (www.ism.ws), the overall index for the Mountain States region for July, a leading economic indicator for the three-state area of Colorado, Utah and Wyoming, stood at a very healthy reading.  The July index from the survey of supply managers, as in past months, continues to point to positive regional growth in the next 3 to 6 months.

Overall Index:  The overall index, or Business Conditions Index, which ranges between 0 and 100, declined to 55.1 from 58.6 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.

“As in the last several months, economic soft patches in the mining and agriculture sectors are spilling over into the broader economy.  Furthermore, much weaker export numbers are likely to restrain growth in the months ahead.  Our surveys over the past several months indicate that growth for the second half of 2013 will be positive but down from the same period for 2012,” 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:  Once again the employment index slumped for the month.  The hiring gauge dropped slightly below growth neutral for July.  The index fell to 49.4 from June’s 52.3 and May’s much stronger 57.1.  “Manufacturers, both durable and non-durable, that sell domestically continue to record gains.  On the other hand, manufacturers with a high proportion of sales abroad are facing economic headwinds.   Weakness in Asia and Europe will continue to weigh on the regional economy in 2013.  Despite the weakness recorded for July, I expect the regional economy to add jobs at an annual pace of 1.5 percent in the second half of 2013. This is well down from the second half of 2012,” said Goss.

This month supply managers were asked to report the starting salary for new supply manager hires with a college degree and no experience.  On average, a starting salary of $43,000 was reported.  The same new hire with 5 years of experience would receive a starting salary of $59,000 according to the supply managers.

Wholesale Prices: The prices-paid index, which tracks the cost of raw materials and supplies, sank to 52.5 from 55.9 in June.  “Wholesale inflationary pressures for the region have moved consistently lower.  Weakness in the global economy and the upturn in the value of the dollar have restrained inflationary pressures at the wholesale level.  This trend provides the Federal Reserve (Fed) with flexibility in terms of when it begins tapering its bond-buying program (QE3).  Even so, I expect the Fed to begin reducing its $85 billion per month bond-buying program at its Sept. 17-18 meetings,” said Goss.

Business Confidence:  Looking ahead six months, economic optimism, as captured by the business confidence index, fell to 52.1 from June’s 54.3.  “Higher interest rates and global economic weakness and uncertainty cooled economic optimism for July,” said Goss.

The federal spending sequestration is having very little impact on the outlook.

“The last five months, we have asked supply managers how the federal spending sequestration was affecting their company.  In the July survey, approximately 38.5 percent of supply managers indicated that the cuts have had an impact on their company to date.  This is up from 30.0 percent for June.  Thus, the negative impacts are rising but are still modest,” said Goss.

Inventories:  Supply managers in the three-state region added to inventories of raw materials and supplies for the month.  The index declined to 58.7 from 67.7 in June.  “We have recorded inventory growth for 44 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,” said Goss.

Trade:  The new export order reading for the Mountain States region decreased to 51.8 from June’s 53.6.  The import reading for the month dipped to 48.4 from 53.1 in June. “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 July were new orders at 53.5, down from 57.0 in June; production or sales at 54.3, down from last month’s 55.3; and delivery lead time at 59.2, down slightly from 60.6 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.ismutah.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, stood above growth neutral for July.  The overall index, termed the Business Conditions Index, declined to 54.8 from 58.7 in June.  Components of the Business Conditions Index for July were new orders at 52.1, production or sales at 49.6, delivery lead time at 59.4, inventories at 61.9, and employment at 50.7.  “For the first half of 2013, the Colorado economy has added jobs at a pace more than double that of the nation.  Non-durable and durable goods producers, especially those linked to construction and vehicle manufacturing, 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.napmutah.org), the overall index for July fell to a solid 54.3 from 57.4 in June.  Components of the Business Conditions Index for July were new orders at 54.4, production or sales at 57.1, delivery lead time at 53.1, inventories at 58.3, and employment at 48.6.  “Utah’s annualized job growth for the last several months is down significantly from earlier in the year.  However, it remains well above that of the nation.  Manufacturing firms linked to construction and vehicle manufacturing are growing at a brisk pace.  Even so, Utah’s growth for the second half of 2013 will be significantly lower that for the same period in 2012,” 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 45 straight months.  The index, termed the Business Conditions Index, sank to 55.9 from 62.3 in June.  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 three to six months.  Components of the overall index for July were new orders at 58.5, production or sales at 53.6, delivery lead time at 60.8, inventories at 53.3, and employment at 53.4.  “Wyoming’s pace of job growth for the first half of 2013 has been positive but well below that of Colorado and Utah.  I expect that pattern to continue for the rest of 2013 as Wyoming adds jobs but at a slow pace.  Uncertainty and a negative outlook for portions of the state’s energy sector will also weigh on growth for the second half of 2013,” said Goss.

August results will be released on September 3, the first business day in September.

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