Growth with No New Jobs for Mountain States in Months Ahead

October survey results at a glance:
Business conditions index climbs above growth neutral.
Job losses to continue for rest of 2009.
Supply managers expect holiday sales to decline by an average of 0.7 percent from last year.

Denver, CO –After sinking below growth neutral for two straight months, the overall index for the Mountain States region, a leading economic indicator for the three-state area, moved above growth neutral for October.

The overall index, or Business Conditions Index, climbed to 51.6 from September’s 48.5 and 47.0 in August. Despite this increase, indices over the past several months point to a struggling economy for the region composed of Colorado, Utah and Wyoming in the months ahead.

The October employment index increased to a still frail 46.1 from September’s 44.0. “Even though unemployment rates are declining across the region, the labor market, like the national, is not in good shape. Since October of last year, government data show that the region has lost almost 171,000, or 4.4 percent, of its jobs. While our survey indicates the pace of job losses will diminish, I expect the region to continue to lose jobs,” Goss Institute for Economic Research Director Dr. Ernie Goss said today.

“While output and sales have been growing and are likely to continue to expand, that growth is likely to be anemic by historical standards with little improvement in the region’s job market,” said Goss today. 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 Goss Institute conducts the monthly survey for Supply Management Institutes in the three states comprising the Mountain States region.

Rebounding prices have accompanied the struggling economy. For the sixth time in the past seven months, the regional inflation gauge was above growth neutral. The inflation gauge, which tracks the cost of raw materials and supplies, climbed to 56.3 from September’s 50.1 and August’s 56.0. “Supply managers reported that prices for raw materials and supplies declined by an average of 0.4 percent over the past year. However, recent growth in the prices-paid index due to a weak dollar and record low Federal Reserve (Fed) interest rates will result in elevated inflationary pressures at the consumer level as early as the middle of 2010,” said Goss.

At the Fed’s September meeting it was announced that, “Nonetheless, with the significant under-utilization of resources expected to persist through 2011, the staff forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009.” “Supply managers in our survey think that this outlook is too optimistic. I agree with supply managers and expect inflationary pressures to rise above the Fed’s acceptable range by the middle of 2010,” said Goss.

Looking ahead six months, economic optimism, captured by the confidence index, slipped to a robust 69.2 from 76.0 in September. “Very low interest rates, both short-term and long-term, and the announcement of healthy third quarter GDP numbers have boosted the economic outlook six months out of supply managers in the Mountain States region,” said Goss.

Trade numbers worsened for October as new export orders plunged to 47.0 from 59.4 in September. October imports climbed to a 56.7 from September’s 44.1.

Supply managers in the three-state region continue to trim inventories, albeit at a slower pace. The September inventory index rose to 47.1 from September’s 42.0. “This is the 13th straight month that the inventory index has been below growth neutral. Even as business confidence has grown, we have yet to record any restocking of inventories for raw materials and supplies. Companies have been very vigilant in reducing inventories,” said Goss.

This month we asked supply managers their expectations for the holiday buying season. On average, supply managers expect holiday sales to decline by 0.7 percent from last year compared to a normal six percent growth,” said Goss.

Other components of the October Business Conditions Index were new orders at 61.7, up from September’s 60.5; production or sales at 53.2, up from 50.0; and delivery lead time at 49.9, up from 46.0.

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: After two consecutive months of below growth neutral readings, the state’s leading economic indicator rose above 50.0. The October index, based upon a survey of supply managers in the state, climbed to 65.5 from 48.7 in September. Components of the overall index for October were new orders at 62.9, production or sales at 56.4, delivery lead time at 80.7, inventories at 47.3, and employment at 80.4. “Surveys of supply managers in the state continue to display excessive volatility. Even though the state’s unemployment rate has declined over the past few months, I expect little improvement in the state’s job market until early 2010. The export of technology related equipment, once underway, will be an important factor contributing to growth in the state,” reported Goss.

Utah: The state’s Business Conditions Index, a leading economic indicator, strengthened a bit for October. Based on the September survey of the membership of NAPM-Utah (www.napmutah.org), the overall index increased to 50.9 from September’s 48.5. Components of the overall index for October were new orders at 64.4, production or sales at 56.1, delivery lead time at 42.6, inventories at 45.7, and employment at 45.9. “In the months ahead, the weak dollar, making U.S. goods more competitive abroad, will support the state’s manufacturing and mining sectors. As a result, I expect the state’s unemployment rate to peak in early 2010 after rising by another 0.3 percent,” said Goss.

Wyoming: For the eleventh straight month, the state’s leading economic indicator fell below growth neutral. The Wyoming Business Conditions Index for October advanced slightly to 47.5 from September’s 47.0. Supported by NAPM-Western Wyoming (http://www.ism.ws/sites/westwyoming/index.htm), surveys over the past several months indicate that the state economy will continue to struggle in the months ahead. Components of the overall index for October were new orders at 50.0, production or sales at 40.8, delivery lead time at 67.7, inventories at 39.9, and employment at 39.4. “In the months ahead, the weak dollar, making U.S. goods more competitive abroad, will support the state’s large and important mining sector. Even so, I expect the state’s unemployment rate to continue to increase before peaking in early 2010 above 7.0 percent,” said Goss.