Mountain States Leading Economic Indicator Advances But with More Wholesale Inflation

October survey results at a glance:
· Leading economic indicator increases and points to slow growth in the months ahead.
· Price gauge continues to point to inflation, not deflation.
· Supply managers, on average, expect a pay raise of 2.4 percent for 2011.
· Business confidence index soars for the month.

Denver, CO – For a thirteenth straight month, the overall index for the Mountain States region, a leading economic indicator for the three-state area of Colorado, Utah and Wyoming, moved above growth neutral 50.0. According to the October survey of supply managers in the Mountain States, the region will experience economic growth in the months ahead.
Overall Index: The overall index, or Business Conditions Index, for October climbed to 55.4 from September’s 54.0. “Even though the leading economic indicator is higher for October, it has been trending downward since April of this year. Thus, I expect positive but somewhat weaker growth for the next three to six months,” 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 October employment index slumped to a healthy 57.9 from September’s 60.2. For October, 18.5 percent reported increases in employment as 7.4 percent detailed pullbacks in October employment levels. “This month, we asked supply managers the size of the pay raise they expected for 2011. The survey participants, on average, expect a 2.4 percent increase, which is indicative of a less than healthy labor market, but is a full percentage point higher than expectations last year at this time when we asked the same question.”

In terms of job growth, the regional picture began to wilt in May of this year. Between December 2009 and May 2010, the region added more than 29,000 jobs. However since May, the region lost approximately 23,000 jobs. “Our surveys over the past several months indicate the region will begin to experience positive job growth in the months ahead,” said Goss.

Wholesale Prices: The regional price gauge expanded to an inflationary 66.7 from September’s 66.6. The prices-paid index, which tracks the cost of raw materials and supplies, has now moved above growth neutral in sixteen of the past seventeen months. “Based on our survey results, as well as the national survey of supply managers, I expect inflation to rise well above the Federal Reserve’s (Fed) target. Once the economy gets back on track, inflation and price bubbles will be a bigger problem than expected. Current massive purchases of inflation protected Treasury bonds indicate that investors also expect significant boosts in inflation in 2011. Unfortunately, this week the Fed will announce another round of quantitative easing which will push inflationary pressures even higher sometime in 2011,” said Goss.

Business Confidence: Looking ahead six months, economic optimism, captured by the October confidence index, advanced to 62.5 from September’s 59.8. “I continue to be surprised by the relatively strong confidence numbers given the backdrop of negative reports for the national economy. However, healthy new orders and new hiring for their firms are pushing supply managers’ economic outlook higher,” reported Goss.

Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month, but at a much slower pace. The October inventory index fell to 50.5 from September’s tepid 51.0. “This is the eleventh straight month that we have recorded inventory restocking after more than one year of inventory reductions. But since the beginning of the year, the percentage of firms reporting that their inventories were too high has increased by ten percent. This is a concern since a significant share of the 2010 economic expansion can be traced to firms restoring their inventory levels. In order to restore sustainable growth we need to begin to seeing increases in consumer spending and business capital purchases,” said Goss.

Trade: Trade numbers improved for October. The new export orders index soared to a healthy 60.8 from September’s 52.1 and 51.5 in August. Imports for October expanded to a robust 65.7 from September’s 55.1. “The export reading is very good news if it continues in future months. Exports, particularly of technology related products, are an important source of growth for the region,” stated Goss.

Other Components: Other components of the October Business Conditions Index were new orders at 56.0, up from 51.6 in September; production or sales at 55.6, up from 52.8; and delivery lead time at 56.9, up from 54.6.

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: Economic growth for Colorado in the months ahead is expected to trend lower. Even so, the state’s leading economic indicator rose above 50.0 for the month. The October index, based upon a survey of supply managers in the state, increased slightly to 53.3 from September’s 50.6. Components of the overall index for October were new orders at 56.6, production or sales at 53.4, delivery lead time at 51.5, inventories at 55.5, and employment at 49.6. “After gaining almost 3,000 jobs between December 2009 and May 2010, the state lost more than 11,000 jobs between May and September. I expect job growth to once again move into positive territory, albeit at a slow pace, in the months ahead,” 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 climbed to 56.0 from 54.3 in September. Components of the overall index for October were new orders at 57.8, production or sales at 58.0, delivery lead time at 57.3, inventories at 51.4, and employment at 55.7. “After gaining almost 21,000 jobs between December 2009 and May 2010, the state lost more than 12,000 jobs between May and September. I expect job growth to once again move into positive territory in the months ahead but at a less than robust rate,” said Goss.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for a twelfth straight month, but is trending lower. The Wyoming Business Conditions Index for October declined to 52.2 from 54.3 in September. 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 next three to six months. Components of the overall index for October were new orders at 50.0, production or sales at 49.8, delivery lead time at 60.5, inventories at 52.2, and employment at 59.6. “After gaining almost 5,000 jobs between December 2009 and May 2010, the state’s employment level was unchanged between May and September. I expect job growth to once again move into positive territory in the months ahead,” said Goss.