Mountain States Leading Economic Indicator Sinks: Growth Likely to Slow

August survey results at a glance:

· Leading economic indicator points to slower growth in the months ahead but no double-dip recession.
· Almost one-third of supply managers expect a 2011 recession.
· Price gauge indicates much higher likelihood of inflation than deflation.
· Business confidence declines for the month.

Denver, CO – For an eleventh straight month, the overall index for the Mountain States region, a leading economic indicator for the three-state area, moved above growth neutral 50.0. The overall index, or Business Conditions Index, for August sank to 54.7 from July’s strong 58.6. This is the first significant pullback in the index this year for Colorado, Utah and Wyoming and is mirroring what we are seeing in the national economy.

“These results are very similar to what we recorded coming out of the 2001 recession. Of course the big difference is that tax cuts were passed in 2001 and 2003 to support the economy and, at this point in time, Americans are staring at a significant tax increase on January 1, 2011. Even so, our surveys are pointing to slower growth at this time, not a double dip recession,” 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).

The August employment index fell to 57.6 from 61.1 in July. “On an annualized basis, the region has added jobs at a much stronger pace than the U.S. over the past several months. Our surveys indicate that this gap will widen somewhat for the rest of 2010 as U.S. job growth slows more dramatically than that for the Mountain States region,” said Goss.

This month we asked supply managers their expectations for the 2011 U.S. economy. Almost one-third, or 32 percent, said it was likely or very likely that the U.S. economy would move back into recessionary territory in 2011. Only 8 percent indicated that a 2011 recession was unlikely, or very unlikely. The remaining 60 percent indicated that there was a 50 percent chance of a 2011 recession.

The regional price gauge dipped slightly to a still inflationary 65.0 from 65.4 in July. The prices-paid index, which tracks the cost of raw materials and supplies, has now moved above growth neutral in fourteen of the past fifteen months. “Based on our survey results, as well as other surveys of supply managers, I still think fears of deflation are way overblown. Once the economy gets fully back on track, inflation and price bubbles will be the problem, not deflation,” said Goss.

Supply managers were asked their anticipations of price changes for their company’s products for 2011. Only eight percent expect price declines for 2011 while 58 percent expect price increases for 2011. The remaining 34 percent expect level prices for 2011.

Looking ahead six months, economic optimism, captured by the August confidence index, slumped to 55.3 from 62.6 in July. “Even in the expanding Mountain States economy, supply managers’ economic outlook is being negatively influenced by the less than optimistic national economic news,” said Goss.

Trade numbers deteriorated for August. The new export orders index declined to 51.5 from July’s 52.9. Imports for August sank to 55.0 from 60.1 in July. “Exports, particularly technology equipment, will be an important factor that sustains a regional economic expansion. Thus these weaker numbers are of some concern,” said Goss.

As another measure of somewhat weaker economic confidence, supply managers in the three-state region added to inventories of raw materials and supplies for the month at a slower pace. The August inventory index sank to 55.3 from 67.4 in July. “This is the ninth straight month that we have recorded inventory restocking after more than one year of inventory reductions. The growth in inventories has been a positive and significant factor pushing the regional economy higher. However, we need to see an increase in the pace of consumer buying before we can be assured that the economy will not dip back into a recession. Inventory buildups are not the basis for sustained economic growth,” said Goss.

Other components of the August Business Conditions Index were new orders at 51.7, down from July’s 53.3; production or sales at 54.0, down from 55.8; and delivery lead time at 54.9, down from 55.6 in July.

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 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: For the eleventh straight month, the state’s leading economic indicator rose above 50.0. However, the August index, based upon a survey of supply managers in the state, is pointing to somewhat slower growth in the months ahead with an August reading of 53.0, down from 56.2 in July and 68.4 in June. Components of the overall index for August were new orders at 46.6, production or sales at 49.4, delivery lead time at 58.9, inventories at 53.0, and employment at 57.1. “Colorado is not benefiting as much from the energy industry expansion as Utah and Wyoming. Computer and electronic component manufacturers in the state continue to lose jobs even with a slight uptick in new orders. Manufacturers in the state are expanding output without any new hiring as a result of productivity growth,” said Goss.

Utah: The state’s Business Conditions Index, a leading economic indicator, once again climbed above growth neutral 50.0. Based on the monthly survey of the membership of NAPM-Utah (www.napmutah.org), the overall index dipped to 54.8 from July’s 58.5. Components of the overall index for August were new orders at 53.7, production or sales at 59.5, delivery lead time at 54.9, inventories at 52.5, and employment at 53.4. “Expansions among the state’s durable goods manufacturers more than offset somewhat weaker conditions in the non-durable goods sector. Heavy manufacturers are reporting improving new orders, employment and hours worked by existing workers,” said Goss.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for a tenth straight month. The Wyoming Business Conditions Index for August declined slightly to still healthy 57.5 from 57.6 in July. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months indicate point to an expanding state economy for the second half of 2010. Components of the overall index for August were new orders at 49.9, production or sales at 49.2, delivery lead time at 66.9, inventories at 58.7, and employment at 63.3. “Manufacturers, both durable and non-durable, are recording solid improvements in business activity. However, recent growth in the state’s energy related industries has pushed overall growth higher. A cheap U.S. dollar, which supports higher energy commodity prices, will be an important factor influencing Wyoming economic progress in the months ahead,” said Goss.