Leeds School: State business leaders lowering expectations

After two consecutive quarters of growing optimism about the state economy, Colorado business leaders' confidence contracted going into the fourth quarter, according to the most recent quarterly Leeds Business Confidence Index (LBCI), released Friday, Oct. 1, by the University of Colorado at Boulder Leeds School of Business.

For the fourth quarter of 2010, the LBCI posted a reading of 48.6, down from 54.8 last quarter. Business leaders remained optimistic about industry sales, but expectations for profits, employment, capital expenditures and state economic growth were down from last quarter, hovering close to 50.

While business leaders continue to believe Colorado will outperform the country in economic growth, the index pointed to declines in growth expectations for both the state and national economies, according to Leeds School economist and Business Research Division Director Richard Wobbekind, who conducts the quarterly survey.

The Business Research Division surveyed more than 1,000 business leaders across all sectors in Colorado and received 279 responses, which is about average for the quarterly survey, said Leeds School researcher Brian Lewandowski, who compiles survey results for the index. An index of 50 is neutral. An index greater than 50 indicates positive expectations, while an index lower than 50 indicates negative expectations.

The fourth quarter index measuring the prospects for the state economy dropped to 49.0 from 56.1 in the third quarter, while the national economy index dropped from 49.5 to 42.6.

"Overall, business leaders are saying that they still believe Colorado is doing better than the nation as a whole from their perspective, but that isn't leading to the kind of results that we would hope for, which is more hiring and more investment in capital," Wobbekind said.

Instead, most businesses are taking a wait-and-see approach, Wobbekind said.

"Business leaders told us they are following two indicators very closely – hiring numbers and consumer confidence," Wobbekind said. "They are waiting to see job numbers and consumer confidence increase before their confidence increases. We couldn't agree more, we want to see those numbers pick up, and once they do, we think that will engage the larger economy."

Hiring and capital expenditures had indexes of 48.7 and 49.0 respectively, down from 53.3 and 53.7 last quarter, according to Lewandowski. Business leaders' sales expectations for the fourth quarter decreased to 52.8 from 59.4 in the third quarter, and their profit expectations decreased from 56.6 last quarter to 49.8.

While the index numbers are down from last quarter, they still are close to 50, Wobbekind said.

"These numbers do not suggest that we're going into a double-dip recession, they're just saying that the economy, while growing, is below potential," Wobbekind said. "However, we see a lot of strong underpinnings in place that point to better things to come in the first or second quarter of 2011."

To access the complete report, visit http://leeds.colorado.edu/lbci.