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September 2004 — Vol. 82, No. 7

Connecticut purchasing managers see improving economy but also new threat: inflation

 

Connecticut purchasing managers say economic conditions continue improving for their industries, but they’re seeing a new threat — inflation. In the latest survey conducted by CBIA and the Connecticut Association of Purchasing Management (CAPM), businesses report strong production, job growth and increased orders, but say they now face higher costs for the principal items they buy.

“The survey indicates that economic recovery is strong, but inflation is definitely an issue that may slow or stop further growth and expansion,” says Peter Gioia, CBIA economist.

Managers report soaring commodity prices, including for energy and metals. They expect prices for principal items including raw materials, parts and key services, to rise sharply. Eighty-two percent* expect higher prices during the second quarter of 2004, compared with 63% in the first quarter and 56% a year ago. Only 4% expect lower prices.

This survey has some good news regarding job creation. Twenty-four percent of the companies responding (double the number a year ago) expect to hire more permanent employees. Fifty-eight percent expect to keep the same number of workers, the same as in the first quarter. Eighteen percent expect to trim their workforces, down from 29% last year.

A special question of the quarter focused on capital and computer-related purchases in 2004. “The outlook for the respondents’ capital purchases is definitely encouraging, and shows strength for manufacturers in 2004,” says CAPM President Alex Sommers. But, he adds, “The results for computer and computer hardware purchases show no growth over last year.”

Thirty-eight percent of respondents expect to purchase more capital goods, such as equipment or trucks, than they did last year. Thirty-eight percent expect to buy the same amount and 23% expect to purchase less than they did in 2003.

Thirty-two percent of respondents expect to purchase more computers and information technology hardware, such as servers or printers, than last year. Thirty-seven percent expect to purchase the same amount and 32% expect to purchase less.

The CBIA/CAPM purchasing managers surveys are key indicators of future economic activity. Other key results include:

  • Production levels, which had fallen precipitously by early 2003, improved nearly 14 percentage points from the first quarter, and are nearly 21 percentage points above levels noted at the same time a year ago. Forty-eight percent of respondents expect stronger productions levels, 35% expect the same level and only 16% expect lower levels.
  • New orders improved substantially compared with the first-quarter survey and are substantially improved compared with a year ago. Fifty-three percent of respondents expect more orders this quarter, 31% expect the same number and 17% expect fewer orders this quarter. Last year at this time, only 30% of respondents expected more orders and 32% expected fewer orders.
  • The backlog of orders is increasing, with 30% of respondents expecting a larger backlog, compared with 23% in the first quarter. Twenty-two percent expect a smaller backlog, down a bit from last quarter.

Overall, this survey shows continued improvement for Connecticut businesses and for the economy, says Gioia. “While job creation still lags production and new orders, companies are hiring. The new threat to continued economic growth may be inflation and the higher cost of principal items purchased by Connecticut companies.”

 

* Percentages have been rounded and may not total to 100%.