Valley economic index stays below growth neutral for third month

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  • Sid Craig School of Business

Valley economic index stays below growth neutral for third month

For a third straight month, the overall San Joaquin Valley Business Conditions Index fell below 50.0 growth neutral in August, pointing to slowed economic growth for the next three to six months.

The index, produced by Fresno State’s Craig School of Business, is a leading economic indicator from a survey of individuals making company purchasing decisions in the counties of Fresno, Madera, Kings and Tulare.

The overall August index fell to 47.9 from 49.8 in July. An index of greater than 50 indicates an expansionary economy over the course of the next three to six months.

“Three months of readings slightly below growth neutral do not necessarily set the stage for negative economic growth for the San Joaquin Valley. We will have to see several months of sub 45.0 readings before a negative economic growth forecast will be issued. However, weaker readings since January of this year are pointing to slower growth,” said Dr. Ernie Goss, research faculty with the Craig School of Business at Fresno State. “Business pullbacks for the area’s durable goods producers and construction firms more than offset growth among non-durable goods manufacturers, including food processors, for the month.”

The index uses the same methodology as that of the national Institute for Supply Management.

Other survey findings:

  • Employment: For a second straight month, the hiring gauge was at or above the growth neutral 50.0 threshold. The employment index expanded slightly to 51.8 from July’s 50.0 and June’s 49.8. According to Goss, over the past 12 months Valley businesses have experienced job growth above 3 percent, which is about double the pace of the nation. But despite the growth, Goss expects the rate of job gains to diminish in the months ahead.
  • Wholesale prices: The prices-paid index, which tracks the cost of purchased raw materials and supplies, fell to 53.7 from July’s 57.4. Mirroring other regional and national surveys, the San Joaquin Valley inflationary gauge shows modest but advancing inflationary pressures at the wholesale level.
  • Business confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, slumped to a weak 44.8 from July’s solid 54. Goss believes weak U.S. and global growth are negatively affecting confidence among businesses in the San Joaquin Valley.
  • Inventories: Businesses reduced inventories of raw materials and supplies last month. The August inventory index sank to 39.6 from 45.9 in July.
  • Trade: The new export orders index remained below growth neutral for August, falling to 30.0 from July’s frail 31.5. The import index fell to 36.1 from 38.8 in July. “The U.S. dollar remains relatively strong, making U.S. goods less competitively priced abroad. At the same time, weaker regional growth reduced imports into the area for the month,” Goss said.
  • Other components: New orders at 45.8, down from July’s 48.8; production or sales at 43.7, down from 48.1 in July; and delivery lead time at 58.8 is up from last month’s 56.1.

For more information, contact Goss at 559.278.2352.

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