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Mountain States Leading Economic Indicator Ends 2011 Strong

Economist Ernie Goss

By Ernie Goss

(Ernie Goss will discuss his latest Mountain States Economic Report Wednesday at 7:30AM MST on The Morning Zone with Dave Chaffin)

Little 2012 Wage Growth

December survey results at a glance:

·         Leading economic indicator expands to very healthy level.

·         An average pay increase of 1.4 percent is expected for 2012.

·         Almost 54 percent of firms anticipate a 2012 sales increase over 2011 levels.

Denver, CO – For the 26th 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.  The national index has risen above growth neutral for 27 consecutive months (www.ism.ws) but has remained lower than the regional reading.  The gap between the results of the two surveys has widened, primarily as a result of Mountain States’ growth tied to the region’s large energy sector, exports and agriculture.

Overall Index:  The overall index, or Business Conditions Index, which ranges between 0 and 100, advanced to a strong 60.2 from November’s 56.8 and 57.3 in October.  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.

“Mountain States regional growth has significantly exceeded that of the national economy over the past several months.  Surveys of supply managers in the region and the U.S. indicate that that difference in terms of job and gross domestic product growth will expand in the first half of 2012.  Firms tied to energy and international markets continue to report healthy 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 (http://www.ernestgoss.com/aboutus.html).

This month we asked supply managers to project sales or business activity for 2012.  One-third of the respondents anticipate no change from 2011levels, 53.3 percent expect a 2012 improvement, while 13.4 percent project no change in sales for 2012 compared to 2011.

For 2011, from high to low estimated GDP growth, the ranking of the three states was: 1) Wyoming, 2) Utah and 3) Colorado.

For 2012, from high to low GDP growth, projected GDP growth rankings of the three states is: 1) Wyoming, 2) Utah and 3) Colorado.

Employment: The December employment index expanded to 58.7 from November’s 57.4.  “In the first half of 2011, the region added jobs at an annualized pace of 2.1 percent.  Based on our survey results, I expect that rapid pace to slow to 1.4 percent for the first half of 2012.  Even with this slower job growth, the region will add more than 27,000 jobs for the first six months of the year leaving the region off more than 116,000 jobs since the beginning of the recession,” said Goss.

This month firms were asked about their pay prospects for 2012.  “Despite recent healthy job growth and solid gains expected for 2012, an average pay hike of only 1.4 percent is anticipated for 2012,” reported Goss.

Wholesale Prices:  The prices-paid index, which tracks the cost of raw materials and supplies, bounced to 68.7 from 66.0 in November.  “This reading is well down from readings recorded earlier in the year.  Just as the national economy has slowed, so have inflationary pressures.  Global investors, seeking the relatively safe haven of U.S. treasuries, have boosted the value of the dollar and reduced commodity prices for U.S. firms.  This continues to provide the Federal Reserve room to maintain record low interest rates,” said Goss.

Inventories:  Supply managers in the three-state region added to inventories of raw materials and supplies for the month with a reading of 66.0, and up from 55.6 in November.  “This is the 25th straight month that we have recorded inventory growth, and it remains a growth factor,” said Goss.

Business Confidence:  Looking ahead six months, economic optimism, captured by the confidence index, advanced to 57.6 from November’s 53.4.  “The economic outlook for supply managers in our survey is slowly improving as national economic news continues to brighten,” said Goss.

Trade:  The regional export orders index expanded to strong 66.4 from 60.6 in November.  The region’s import reading slipped to a still strong 56.2 from November’s 58.5.  “Exports have been an important source of regional growth.  Even with a stronger U.S. dollar making U.S. goods less competitive abroad, I expect regional exports to remain healthy for the first half of 2012,” reported Goss.

Other Components: Other components used to calculate the overall index for December were new orders at 58.7, up from 56.2 in November; production or sales at 60.8, up from 58.5; and delivery lead time at 52.5, down from 56.1 in November.

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, advanced for December.  The overall index, termed the Business Conditions Index, for December expanded to 59.6 from 56.2 in November.  Components of the Business Conditions Index for December were new orders at 58.4, production or sales at 58.7, delivery lead time at 55.3, inventories at 64.2, and employment at 61.6.  “Durable and non-durable goods producers in the state continue to report solid growth in sales and production. However, much of the growth has been achieved with increasing productivity and an expanding average hourly work week.  Advancing manufacturing production activity has pushed overall state job growth into a healthy range,” said Goss.  Estimated 2011 growth: Jobs 1.1 percent, inflation adjusted GDP 3.0 percent.  Projected 2012 growth: Jobs 1.5 percent, inflation adjusted GDP 3.3 percent.

Utah:  The state’s overall index, or Business Conditions Index, a leading economic indicator, once again remained above growth neutral 50.0.  Based on the monthly survey of the membership of ISM-Utah (www.napmutah.org), the overall index climbed to a solid 59.4 from November’s healthy 56.4.  Components of the Business Conditions Index for December were new orders at 59.2, production or sales at 62.8, delivery lead time at 52.5, inventories at 63.8, and employment at 58.7.  “Durable goods producers, especially those dependent on exports, outperformed non-durable goods manufacturers.  Healthy manufacturing growth for 2011 pushed overall Utah job growth higher.  I expect this trend to continue into 2012,” said Goss.  Estimated 2011 growth: Jobs 2.5 percent, inflation adjusted GDP 4.3 percent.  Projected 2012 growth: Jobs 2.5 percent, inflation adjusted GDP 4.2 percent.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for the 26th straight month.  The index, termed the Business Conditions Index, rose to 63.2 from November’s 60.4.  Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months point to an expanding state economy for the next 3 to 6 months.  Components of the overall index for December were new orders at 56.5, production or sales at 55.3, delivery lead time at 78.3, inventories at 72.1, and employment at 53.8.  “Firms tied to international markets and to energy experienced a very strong second half of 2011.  I expect that growth to continue for the first half of 2012,” said Goss.  Estimated 2011 growth: Jobs 3.0 percent, inflation adjusted GDP 6.6 percent.  Projected 2012 growth: Jobs 2.8 percent, inflation adjusted GDP 6.5 percent.

January survey results will be released on February 1.

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