Colorado business leaders’ outlook on the economy has turned negative heading into the fourth quarter, according to the most recent quarterly Leeds Business Confidence Index, or LBCI, released earlier this month by the University of Colorado Boulder Leeds School of Business.
Confidence decreased in all six economic categories measured by the index, with hiring plans leading the decline. For the fourth quarter of 2011, the LBCI posted a reading of 47.3, down from 51.6 in the third quarter, according to Richard Wobbekind, Leeds School economist and executive director of the Business Research Division, who conducts the quarterly survey.
“Unfortunately, this quarterly index is reflecting the uncertainty in the overall economy,” Wobbekind says.
An index reading greater than 50 indicates positive expectations, while an index lower than 50 indicates negative expectations. Several factors are feeding the economic uncertainty, including employment reports released for August showing zero growth for the nation and negative growth for Colorado.
Beyond that, Wobbekind said, the housing market has continued to bump along the bottom, with foreclosures on the uptick once again. “If that isn’t enough, we throw in a little sovereign debt and the uncertainty of resolving that issue in Europe, and we wind up with a lot of uncertainty in the economy, a declining stock market and confidence really dropping,” he said.
Hiring plans led the decrease among the six categories surveyed, dropping from a reading of 52 in the third quarter to 46.8 in the fourth. Wobbekind points to the extremely low cost of capital and the general economic uncertainty as contributing factors.
“Investing in a machine has a certainty to it, but investing in a person has the uncertainties of health-care reform and what the impact of that is going to be, and also wages that are higher than in other parts of the world,” Wobbekind said. “In a narrower picture, businesses are worried that we’re not going to have a sustainable recovery, so even though they were thinking about expanding in our last survey, now they have gone into a wait-and-see mode.”
Confidence in the state economy turned negative for the first time in a year, dropping from 51.2 to 49.0, while the national index dropped further into negative territory, falling from 44.0 to 40.4, the lowest level since 2009. An index reading of 50 is neutral.
“Businesses in Colorado are saying that the nation is doing a lot worse than we are,” Wobbekind said. “We’re not doing great, but the nation is doing a lot worse. They are more optimistic about the state going forward, and I hope they’re right.”
The sales and profits expectations for business leaders both dropped, with the sales index dropping from 55.8 to 51.2, and the profit index fell from 53.1 to 49.5. Expectations for capital expenditures also dropped with the index falling from 53.4 to 46.7.