Mountain States Leading Economic Indicator Points to Healthy Growth: Exports Important Driver

February survey results at a glance:
· Business confidence slumps for the month.
· Supply managers expect wholesale prices to increase by 3.7 percent over the next six months.
· Leading economic indicator points to healthy growth into the third quarter of this year.
· Export orders continue to be an important economic driver.

Denver, CO – For the seventeenth 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. According to surveys of supply managers over the past several months, including February’s, improving trade and an expanding energy sector are underpinning improving economic conditions in the months ahead.

Overall Index: The overall index, or Business Conditions Index which ranges between 0 and 100, climbed to 59.5 for February from January’s 56.2. An index of 50.0 is considered growth neutral, and an index greater than 50 indicates an expansionary economy over the course of the next three to six months. A rapidly growing energy sector and soaring trade are pushing growth higher for firms in the region, particularly companies with ties to the energy or international markets. The Business Conditions Index is a mathematical average of indices for new orders, production or sales, employment, inventories and delivery lead time.

“The Federal Reserve’s (Fed) policy of record low interest rates producing a cheap dollar, is providing a significant boost to the regional economy. Since December 2008, the Fed has maintained short-term interest rates (the funds rate) between zero and one-quarter percent. Over the past year, this has contributed significantly to an 18 percent increase in farm products, a 7.5 percent upturn in energy prices paid by consumers and a 6.5 percent gain in energy prices paid by businesses. This will continue to spark overall economic conditions for the first six months of 2011 for the region,” 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 February employment index dipped to a still healthy 54.6 from January’s 57.2. “We are recording much improved hiring for businesses in the region, especially firms tied to international markets and energy. This has meant companies in non-urban areas are experiencing job gains that are outpacing that of their urban counterparts,” said Goss.

Wholesale Prices: The regional price gauge dipped to a still inflationary 73.0 from 77.1 in January. The prices-paid index, which tracks the cost of raw materials and supplies, has now moved above growth neutral in twenty of the last twenty-one months. “Since the national recession ended in June 2009, we have tracked what I consider to be unsustainable increases in our inflation gauge,” reported Goss.

“This month we asked supply managers how much they expected prices of products they buy to increase by in the next six months. Approximately one-fifth of the supply managers expect these prices to grow by more than six percent over the next six months. Overall, supply managers anticipate prices to growth by 3.7 percent over the next six months, or approximately 7.4 percent on an annualized basis. Over the past three months, wholesale prices for finished goods have grown at an annualized pace of almost ten percent. Our surveys show no signs that this pace will slow in the coming months. As I have said in past months, I expect long-term interest rates to grow rapidly in the second half of 2011 to compensate lenders for rising inflation,” said Goss.

Business Confidence: Looking ahead six months, economic optimism, captured by the confidence index, slumped to 56.2 from January’s 75.0. “Many of the supply managers are concerned that higher energy prices will begin to cut into growth. Nonetheless, supply managers have remained optimistic regarding future economic conditions even with elevated unemployment rates and rising inflationary pressures,” reported Goss.

Inventories: Supply managers in the three-state region added to inventories of raw materials and supplies for the month at a faster pace with a reading of 58.0, up from 54.0. “This is the fifteenth straight month that we have recorded inventory growth. As a result of rising economic confidence, firms in the region continue to expand inventories in anticipation of growing sales in 2011,” said Goss.

Trade: An expanding global economy is pushing trade higher. Aided by a cheap dollar making U.S. goods more competitively priced abroad, February’s new export orders index increased to 68.6 from 67.0 in January. The region’s import reading declined to 57.7 from 59.1 in January. “The Federal Reserve’s expansionary interest rate policies continue to weaken the U.S. dollar and strengthen regional exports. I expect this trend to continue until the Fed abandons QE2 (quantitative easing 2) sometime this summer,” said Goss.

Other Components: Other components of the February Business Conditions Index were new orders at 64.4, up from 59.7 in January; production or sales at 64.3, up from 54.6; and delivery lead time at 56.0, up from 55.4.

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 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, moved higher for February. The February overall index, termed the Business Conditions Index, advanced to a solid 57.1 from January’s 54.9. Components of the Business Conditions Index for February were new orders at 55.4, production or sales at 55.8, delivery lead time at 61.8, inventories at 55.6, and employment at 57.0. “Even though the trend in manufacturing employment is positive, Colorado ’s manufacturing’s sector is still off more than 24,000 jobs since the beginning of the recession. I expect the positive trend in both manufacturing and overall job growth to continue, albeit at a muted pace for the first half of 2011,” said Goss.

Utah: The state’s overall index, or 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 a very healthy 59.8 from 55.9 in January. Components of the Business Conditions Index for February were new orders at 63.7, production or sales at 64.9, delivery lead time at 59.9, inventories at 58.8, and employment at 51.7. “Even though the trend in manufacturing employment has been very healthy over the past year, Utah ’s manufacturing sector is still off more than 19,000 jobs since the beginning of the recession. I expect the positive trend in both manufacturing and overall job growth to continue for the first half of 2011,” said Goss.

Wyoming: The state’s leading economic indicator from a survey of supply managers in the state climbed above growth neutral for the sixteenth straight month. The index, termed the Business Conditions Index, expanded to 66.6 from January’s strong 61.1. 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 first half of 2011. Components of the overall index for February were new orders at 70.8, production or sales at 65.0, delivery lead time at 59.9, inventories at 58.8, and employment at 51.7. “Even though the trend in manufacturing employment is positive, Wyoming ’s manufacturing sector is still off approximately 900 jobs since the beginning of the recession. I expect the positive trend in both manufacturing and overall job growth to continue for the first half of 2011,” said Goss.

March survey results will be released on April 1.