Valley leading economic indicator ends 2011 on sour note
January 3, 2012 12:01pm
• Job losses increase, overall index down
• ‘I expect economic growth to weaken and potentially turn negative in the next three to six months’
There is little joy to be found in the latest San Joaquin Valley economic report from Ernie Goss, research associate with the Craig School of Business at California State University, Fresno.
Since June, the San Joaquin Valley “Business Conditions Index” has trended downward, with December’s gauge moving below growth neutral and for the fifth time in the past six months, firms surveyed for the index reported net job losses, says the report, released Tuesday.
An average 1.6 percent pay increase during the year is anticipated by those surveyed in Fresno, Madera, Kings and Tulare counties for the Craig School of Business at Fresno State.
The index, a leading economic indicator from a survey of individuals making company purchasing decisions for firms in the four counties, continues to point to slow to no growth in the coming months. The index is produced using the same methodology as that of the national Institute for Supply Management.
The overall index fell to 48.4 from 51.7 in November and 48.1 in October. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.
“Based on our surveys over the past several months, I expect economic growth to weaken and potentially turn negative in the next three to six months,” says Mr. Goss.
December survey participants were asked to project sales or business activity for 2012. No change from 2011 is anticipated by 26.3 percent, while 57.9 percent expect an improvement in 2012, and 15.8 percent project no change in sales for 2012 compared to 2011.
The hiring gauge slumped to 48.0 from November’s tepid 50.3. “Manufacturing and construction firms continue to shed jobs. Both durable and non-durable goods manufacturers detailed pullbacks in hiring for the month,” says Mr. Goss.
Reflecting the weak job market, respondents were less than optimistic regarding pay increases for 2012, with an average boost in pay of 1.6 percent anticipated for the year and 52 percent anticipating a pay cut or no change in pay for 2012.
The prices-paid index, which tracks the cost of raw materials and supplies, dipped to a modest 55.7 from November’s 63.8. “European debt problems and slower regional growth have pushed our inflation gauge lower. Over the past two months, due to investors’ flight out of European debt into U.S. debt, the value of the U.S. dollar has increased by 5.3 percent. The upturn in the value of the dollar has helped push commodity prices and our inflation gauge lower,” Mr. Goss says.
Businesses once again contracted inventories for the month. The inventory index, which tracks the change in the inventory of raw materials and supplies, slumped to 47.2 from 50.4 in November.
Looking ahead six months, economic optimism, captured by the December business confidence index, rose to a still anemic 44.1 from November’s 42.5. “Both U.S. and global economic uncertainty and slow growth continue to restrain economic confidence among individuals making purchasing decisions for their firms,” says Mr. Goss.
For the sixth straight month, firms experienced a pullback in new export orders with a December reading of 44.7, up slightly from 43.8 in November. At the same time the area’s import index stood at a weak 46.5, down from 47.5 in November. Mr. Goss says that slow area growth and weakening global business continue to diminish trade numbers for the area,.
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