Utah economy humming

0 Comments | Deseret News (Salt Lake City), Jul 4, 2006 | by Jenifer K. Nii Deseret Morning News

Interest rate hikes and high gas prices are finally showing their teeth, nibbling into the regional and national economies -- except in Utah, where the state's business leaders and supply managers are reporting brisk economic activity.

The Mountain States Business Conditions Index, released Monday, dipped to 65.4 in June from 65.8 the month before. The report, prepared by Creighton University in Omaha, Neb., is based on a monthly survey of local supply managers and business leaders in Utah, Wyoming and Colorado.

The index ranges from zero to 100, with a figure over 50 indicating an expansionary economy over the next three to six months. It uses the same methodology as a national survey conducted by the Institute for Supply Management, a private research group that surveys purchasing and supply executives in more than 350 industrial companies nationwide.

The ISM's report, also released Monday, showed its manufacturing index at 53.8 in June, slightly below the 54.4 reading in May. It was the slowest growth reading since the gauge registered 53.5 last August.

The results reinforced the belief of many experts that the U.S. economy has started to slow as higher interest rates have reduced demand for housing while rising fuel prices have put a crimp in consumer spending. As a result, analysts expect that the Federal Reserve, which last Thursday raised short-term interest rates for the 17th consecutive time, may soon be able to take a pause.

"If other June data also paint a picture of moderation . . . ahead of the August Federal Open Market Committee meeting, the Fed may want to pause to see whether the slowdown is temporary or not," Bear Stearns economist John Ryding said in a research note. "However, inflation readings remain elevated, and we still see the Fed raising the funds rate to 5.5 percent at some point in the third quarter."

Utah's index jumped to 68.3 in June from May's 61.6.

"Upturns in economic activity were reported for almost all sectors of the Utah economy," Ernie Goss, Creighton University economics professor, wrote in the report. "Due to expanding business conditions, truck-transportation firms recorded very strong numbers for the month. Utah food processors were the only industry to report weak conditions for the month."

The overall numbers for the three-state region were subdued.

"The 17 Federal Reserve rate hikes and higher energy prices are beginning to slow the regional economy," Goss wrote. "Additionally, shortages of skilled labor are slowing growth in portions of the region. While I do expect the region to continue to expand for 2006, it is clear that second-half growth will be somewhat less than was experienced the first six months."

Colorado's index rose to 64.1 from May's 63.5, but was down from April's 68.0. Wyoming reported dramatic slowing, dropping to 63.3 from May's robust 74.8 and April's 81.1

"All eyes will be on the Fed when it meets again in August," Goss wrote. "At this point in time, I expect the Fed to cease raising rates as forthcoming data confirm a slowing economy. However, it will depend on the Fed's interpretation of the economic data released between now and Aug. 8."

Also Monday, the Commerce Department reported that construction spending nationwide fell in May by the largest amount in nearly two years as the once booming housing sector suffered another big decline.

The report said that building activity dropped by 0.4 percent in May to a seasonally adjusted annual rate of $1.206 trillion following a 0.2 percent fall in April. It marked the first time in more than three years that construction spending had fallen for two consecutive months. May represented the biggest one-month decline since a 0.7 percent fall in September 2004.

E-mail: jnii@desnews.com