CU Leeds School index: Business leaders foresee solid expansion in state

For the first time in three years, Colorado business leaders are predicting solid growth in the state economy, according to the most recent quarterly Leeds Business Confidence Index, or LBCI, released this month by the University of Colorado at Boulder Leeds School of Business.

The LBCI for the third quarter of 2010 posted a reading of 54.8, up from 51.7 last quarter. Five of the six index components recorded moderate gains and one remained flat. Business leaders surveyed also remained cautious about the outlook for the national economy, 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 268 responses, which is about the average for the quarterly survey, said Leeds School researcher Brian Lewandowski, who compiles the survey results for the index. An index of 50 is neutral. An index greater than 50 indicates positive expectations, while an index of less than 50 indicates negative expectations.

"The greatest point of optimism is that business leaders expect increased investment in labor and capital for the third quarter," Wobbekind said. "Investment and employment are two important components that will help bring us out of the recession. Now that business leaders are expecting these to increase, we think that things are looking up in Colorado."

Hiring and capital expenditures had indexes of 53.3 and 53.7 respectively. About 30.2 percent of panelists foresee moderate or strong increases in capital spending in the third quarter, while about 55.2 percent anticipate no change and 14.6 percent project moderate or strong decreases in capital spending. About 29.5 percent of panelists believe that hiring will increase in the third quarter, while 55.2 percent project no change and 15.3 percent anticipate decreased hiring, according to Lewandowski.

Business leaders' sales expectations for the third quarter were strong at 59.4, with more than 51 percent of respondents saying they expect sales to increase in the third quarter, while about 35 percent believe sales will stay about the same. Only 14.2 percent expect a decline for their third quarter sales prospects, Lewandowski said.

"Colorado business leaders remain optimistic that we will outperform the national economy, even though from an employment perspective Colorado has lagged the nation in terms of entering and exiting the recession," Lewandowski said.

Wobbekind, who gives the Leeds School's annual Business Economic Outlook forecast each December, also recently met with the forecast steering committee members, who represent the state's major economic sectors, and his own research team for a midyear update on Colorado's economy.

The Leeds School's forecast in December called for the loss of 3,200 jobs in Colorado this year, and now the projection is about 22,500 jobs lost.

"We're going to have job growth start later in the year than we had projected in December, so the net job loss will be larger than we projected," Wobbekind said.

When they released their forecast in December, Wobbekind said they were debating whether Colorado would lead or lag the U.S. recovery.

"Our belief was that we would lead the U.S. recovery and start our job growth here in Colorado a little bit faster than the rest of the nation," Wobbekind said. "I think the evidence at this point in the year shows that Colorado is lagging the national recovery based on employment data. So that's pushing back our job growth to a little bit later in the year."

One of the reasons for the lag, Wobbekind said, is that Colorado's manufacturing sector isn't faring as well as the rest of the nation's.

"Nationally, manufacturing is one of the most robust sectors, while Colorado has been shedding jobs in the manufacturing area," Wobbekind said.

Overall, Wobbekind said they still expect the Colorado economy to start turning the corner in the third quarter and he pointed to some positives in the struggling state economy.

"I think there are quite a few areas that you could be optimistic about," Wobbekind said. "We have a large agriculture sector and it probably will have a decent if not excellent year. We have stable and affordable housing in the state, a large transportation sector, and a lot of tech companies. And although tech manufacturing has not done well, other types of tech both in Colorado and nationwide are doing really well. So those are some pretty positive pieces when you look at the overall scheme of things."