Colorado business leaders remain pessimistic headed into the second half of the year, according to the latest results of a quarterly survey tracking their expectations.

Leaders blamed their concerns on higher interest rates, inflation and housing costs as well as the possibility of a recession this year or next year.

The Leeds Business Confidence Index fell a point to 44.1 for the third quarter. Readings below 50 reflect more negative than positive responses to the survey upon which the index was based. Individual scores for four of six metrics declined. None of the scores topped 50.

The business research division of the Leeds School of Business at the University of Colorado at Boulder calculates the index.

Rich Wobbekind, senior economist and faculty director of the division, said leaders cited several reasons for their responses as well as challenges for the Colorado economy. Interest rates and inflation ranked as the top two reasons for their responses.

“When we asked business leaders about the state’s most pressing economic challenges in the Colorado economy, 27.4 percent noted the cost of housing was a top factor,” Wobbekind said. “Politics and labor were other top economic challenges.”

Although expectations for a recession moderated, 31 percent of leaders said they believe a downturn could occur in 2023.

Expectations for the Colorado economy fell 1.5 points to 44.9 for the third quarter. While 18.3 percent of leaders forecast moderate or strong increases, 37.7 percent predicted moderate or strong decreases. At 44 percent, the biggest share anticipated no change.

The individual score was once again lowest for expectations for the national economy despite increasing 2.2 points to 39.3. While 17.3 percent of respondents predicted moderate or strong increases, 53.9 percent anticipated moderate or strong decreases and 28.8 percent forecast no change.

Gross domestic product, the broad measure of the production of goods and services, increased at a seasonally adjusted annual rate of 2.7 percent in Colorado for the fourth quarter of 2022 and 1.7 percent year-over-year.

Personal income rose 5.9 percent during the fourth quarter of 2022 compared to the same quarter a year ago.  Per capita personal income increased 5.3 percent.

Nationally, GDP increased at a seasonally adjusted annual rate of 1.3 percent in the first quarter of 2023.

The score was once again highest for sales, although the score fell 2.4 points to 48. While 27.8 percent of respondents expected moderate to strong increases in sales, 32.4 percent anticipated moderate to strong decreases and 39.8 percent forecast no change.

Expectations for profits fell 1.9 points to 45.7 with 23 percent anticipating moderate or strong increases,
38.7 percent moderate or strong decreases and 38.2 percent no changes.

Expectations for hiring fell three points to 43.7 with 17.3 percent of respondents forecasting moderate or strong increases, 37.2 percent moderate or strong layoffs and 45.5 percent no staffing changes.

Wobbekind said Colorado has fared better than other states for employment recovery since the COVID-19 pandemic As of January, nonfarm employment was 2.8 percent above the prerecession peak.

As of May, the latest month for which numbers are available, nonfarm payrolls had grown 30,200 — or 1.1 percent — over the past year.

Employment growth is expected to continue in 2023, but at a slowing pace with the addition of 51,000 jobs for the year.

The score for capital expenditures rose seven-tenths of a point to 43.1 for the third quarter with 17.8 percent of respondents anticipating moderate or strong increases in spending, 37.2 percent moderate or strong decreases and 45 percent no change.

According to Dodge Data and Analytics, the nominal value of construction starts in Colorado between January and May fell 38 percent compared to the same span in 2022. The value of residential, nonresidential and nonbuilding construction all declined.

Asked to provide the reasons for their expectations, 34 percent of business leaders blamed higher interest rates and 27.2 percent cited inflation.

Wobbekind said inflation in the Denver, Aurora and Lakewood metropolitan area outpaced the nation from 2013 to 2020, but relented in 2021. Inflation in that area is expected to increase 4.3 percent for 2023.

Just 10.3 percent of leaders said they expect inflation to fall below 3 percent in 2023, but 44.9 percent anticipated inflation of less than 3 percent sometime in 2024.

Business leaders also were asked to identify what they considered the most pressing challenges for the Colorado economy. Among those who provided open-ended explanations, 27.4 percent cited housing costs, 21.3 percent politics and 20.1 percent labor.

Finally, Colorado business leaders were asked about their expectations for a recession.

While 12 percent said they believe the United States is already in a recession, 31 percent said they expect a recession in the second half of 2023. Another 19 percent said the anticipated a recession in 2024 and 16.8 percent after 2024.