VALLEY ECONOMIC INDEX REMAINS SOLID; FINDING, HIRING WORKERS BIGGEST CHALLENGE

Jun 06, 2018 No Comments by

The San Joaquin Valley Business Conditions Index declined slightly in May, but remained above growth neutral for the 21st consecutive month, pointing to healthy growth in the next three to six months.

The May index was at 56.9, dipping from April’s 57.9. An index greater than 50 indicates an expansionary economy.

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

“Both durable and non-durable goods manufacturing reported solid gains for the month,” said Dr. Ernie Goss, research faculty with the Craig School of Business at Fresno State. “Food processing continues to be a major contributor to regional growth. As in recent months, construction and wholesale trade activity in the San Joaquin Valley continued to expand at a healthy pace. I expect this pace to remain strong for the next three to six months.”

This month, survey participants were asked to identify the greatest economic challenge to 2018 business operations. Almost four in 10, or 38.1 percent, reported that finding and hiring qualified workers represented the top challenge facing their firms. Almost one-fourth, or 23.8 percent, reported that U.S. economic weakness was potentially the greatest economic challenge to their operations.

Employment: The employment gauge moved slightly higher to 54.7 from 54.6 in April. “The San Joaquin region has experienced strong job growth at 2.8 percent over the past 12 months, or almost double the nation’s 1.5 percent expansion over the same period of time. I expect the region to continue to add jobs, but at a somewhat slower pace for the next three to six months,” Gross said.

Wholesale prices: After declining for three straight months, the prices-paid index, which tracks the cost of purchased raw materials and supplies, rose to 74.2 from April’s 73.3 indicating elevated inflationary pressures at the wholesale level. “Inflationary pressures at both the consumer and wholesale levels will likely trend higher in the months ahead. Moreover, I expect the Federal Reserve to raise short-term interest rates at its June meetings by one quarter of one percentage point (25 basis points) to combat growing inflationary pressures,” Gross said.

Business confidence: Looking ahead six months, economic optimism, as captured by the business confidence index, advanced to a very healthy 69.9 from April’s 65.9. “Healthy profit growth and still low interest rates boosted business confidence. However, the May survey was completed before the Trump administration’s tariff increase placed on steel and aluminum beginning June 1. I expect these tariffs to shrink business confidence in the months ahead,” Gross said.

Inventories: The inventory index unexpectedly fell below growth neutral for May. The index, which reflects the growth or decline in supplies of raw materials and supplies, fell to 44.0 from 52.8 in April.

Trade: The new export orders index slumped to 43.9 from 52.2 in April, while the import index slipped to solid 56.3 from 57.5 in April.

Other components: Other components of the May Business Conditions Index were: new orders at 64.1, up from 61.5 in April; production or sales at 64.2, up from April’s 61.6; and delivery lead time at 57.8, down from last month’s 58.5.

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