Colorado business confidence index tumbles to record low

Phil Castle, The Business Times

Brian Lewandowski
Richard Wobbekind

A measure of confidence among Colorado business leaders has tumbled to its lowest level ever as concerns over the coronavirus outbreak mount.

“We expected this was going to be bad. It was particularly dismal,” said Brian Lewandowski, executive director of the research division of the Leeds School of Business at the University of Colorado at Boulder.

The Leeds Business Confidence Index for the second quarter dropped 21.1 points to 29.7.

Readings below 50 reflect more negative than positive responses. At this time last year, the index stood at 52.7.

The latest reading is the lowest for the index since its inception in 2003. The decrease between the first and second quarters also was the largest single decline. Four of six metrics the index tracks fell to record-low levels.

Business leaders expect conditions to improve in the third quarter, although not to levels before the outbreak, Lewandowski said. “It is less negative than the outlook for the second quarter.”

The research division of the Leeds School of Business calculates the index based on the results of surveys of business leaders in a variety of industries from across Colorado. A total of 423 leaders, most of them business owners and managers, responded to the latest survey conducted between March 1 and 20.

The index dropped to 29.9 about half way through the Great Recession. But the latest decline was more sudden, Lewandowski said. “This kind of hit us in the face overnight.”

Richard Wobbekind, senior economist at the Leeds School of Business, equated the economic effects of the outbreak to a natural disaster, only on a larger scale. “It’s as if a hurricane hit the entire country.”

While physical infrastructure hasn’t been damaged, business infrastructure could be lost as some operations close and never reopen, Wobbekind said.

The timing of the recovery will depend not only on when the outbreak ends, but also when people go back to work and regain their confidence to return to public places and travel, he said. That’s especially important for a state like Colorado that depends on tourism. Unprecedented economic stimulus measures also will play role.

For the second quarter, 86 percent of those who responded to the survey upon which the Leeds Business Confidence Index was based and provided explanations, said the coronavirus outbreak affected their expectations. They also cited the economy, upcoming election and low oil prices.

For the second quarter, confidence in the Colorado economy fell 22.7 points to 28.8. While 67.6 percent of business leaders expected moderate or strong decreases in the state economy, 24.8 percent anticipated no change and 7.6 percent forecast moderate or strong increases.

Confidence in the national economy fell 24.1 points to 21.8, the lowest of the six metrics. While 81.4 percent of leaders forecast a decrease, 13.2 percent expected no change and 5.5 percent anticipated an increase.

The reading for profits fell 20.6 points to 31.5 with 65.5 percent of leaders anticipating decreases, 21.5 percent no change and 13 percent increases.

The reading for sales fell 21.2 points to 32.9 with 65.4 percent of leaders expecting decreases, 17 percent no change and 17.5 percent increases.

Readings for hiring and capital expenditures also dropped, but not to record lows.

The reading for hiring fell 18,2 points to 32.4 with 57.3 percent of leaders forecasting layoffs, 30 percent expecting no staffing changes and 12.7 percent anticipating additions.

The reading for capital expenditures dropped 19.6 points to 31 with 58.2 percent of owners expecting decreases, 31.7 percent anticipating no change and 10.2 percent forecasting increases.

Looking ahead to the third quarter, overall index expectations were higher at 38.2. While that reading remains well below growth-neutral 50, it’s higher than the second quarter, Lewandowski said. “It is a little more positive signal.”

In the meantime, other economic indicators — including those for labor and gross domestic product — likely will get worse before they get better, he said. By some projections, the unemployment rate could rise to double digits as gross domestic product drops 40 percent.

Wobbekind said he’s especially worried about the effects of the coronavirus outbreak on small businesses as well as state and local government entities dependent on sales tax revenues.