For the fourth consecutive month, the San Joaquin Valley Business Conditions Index compiled for Fresno State’s Craig School of business increased and rose above growth neutral 50.0, signaling slowly improving economic conditions ahead for the region.

The index is a leading economic indicator from a survey of individuals making company purchasing decisions in Fresno, Madera, Kings and Tulare counties. The index is produced using the same methodology as that of the national Institute for Supply Management (www.ism.ws).

Other survey highlights:  

  • Approximately 23 percent report negative fallout from European economic turmoil.
  • Wholesale inflation cools again.
  • Business confidence nose dives.

The index, produced by Dr. Ernie Goss, research associate with the Craig School, rose to a healthy 57.7 from April’s 52.1 and 51.8 in March. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

“We are tracking a slowly improving economy,” Goss reported. “As in the past several months, companies linked to agriculture and international markets are experiencing upturns in overall economic activity.”

For May’s index, survey participants were asked the impact of European economic problems on their firm. Approximately 23 percent reported negative fallout from Europe’s problems.

“Although exports to Europe are relatively small for most firms in the region, the impacts via the strengthening of the dollar are considerable. On a positive note, as the Euro has weakened, so have the prices of supplies from Europe,” said Goss.

Employment: The hiring gauge climbed to a solid 57.9 from 55.9 in April – just the fourth time in the past nine months that the employment index has risen above growth neutral. “However, we are tracking a job market that is improving, especially for food producers and other non-durable goods producers linked to international markets,” said Goss.

Wholesale prices: The prices-paid index, which tracks the cost of raw materials and supplies, sank to 56.0 from April’s 62.0. “Our inflation gauge is sinking at a quickening pace. Slower economic growth and a stronger dollar are both slowing the growth in prices for input across the board,” said Goss.”I expect the problems in Europe and waning inflationary pressures to push the Federal Reserve to take additional actions in the months ahead.” He added that 16 percent of survey participants project price declines the coming six months for inputs that they buy.

Inventories: Businesses expanded inventories, advancing to 53.1 from April’s weak 46.2. “An inventory index above growth neutral is an indicator of an improving outlook by businesses,” said Goss, “in anticipation of growth in sales and production in the months ahead.”

Business confidence: Looking ahead six months, economic optimism, captured by the business confidence index, slumped to 46.8 from 51.9 in April. “The downturn in U.S. economic growth and Europe’s economic problems are definitely negatively influencing business confidence in the area,” reported Goss.

Trade: For May, firms experienced slower growth in new export orders with a May reading of 53.5, down from 64.7 in April. At the same time the area’s import index expanded to 53.9 from April’s 53.6. “Exports continue to be one of the most important factors driving growth in the regional economy higher. However, gains in the value of the dollar will slow growth in new export orders in the months for the area,” said Goss.

Other components: New orders at 58.2 were up from 52.3 in April; production; sales at 59.0, up from 50.1; and delivery lead time at 60.2, up from April’s 56.1.

For more information, contact Goss at 559.278.2352.

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