Higher inflation and rising interest rates weigh on business confidence in Colorado

Business leaders’ expectations for the fourth quarter soured slightly, but they aren’t worsening when looking ahead to the start of next year, according to the quarterly Leeds Business Confidence Index from the University of Colorado Boulder.

The LBCI looks at six measures — the outlook for the Colorado and U.S. economy, as well as expectations for sales, profits hiring and capital spending — and tracks how they change over time. An index reading below 50 indicates expectations of contraction and above 50 of expansion.

Overall expectations were a still-positive 53.9 as recently as the second quarter, but the index dropped sharply to 41.1 in the third quarter as rising inflation, supply chain constraints, labor shortages and the war in Ukraine weighed on sentiment. The outlook for the fourth quarter has moved slightly lower to 39.8, but it rose to 41 for the first. The outlook for the U.S. and Colorado economies improved between the third and fourth quarters.

But when looking at their own businesses and industry, expectations softened further for the remainder of the year.

“Business leaders are clearly signaling that they see weakness in the economy coming ahead. Leaders see weakness in sales, hiring and capital expenditures. We are getting signals that things are slowing down,” said Richard Wobbekind, a senior economist and faculty director of the Leeds Business Research Division during a news call Thursday morning.

Colorado business leaders remain much more pessimistic about the U.S. economy, which has a score of 30.7 than they are about the Colorado economy, which had a score of 40. But they see the U.S. economy rebounding some in the first quarter, which resulted in a score of 35 versus an increase to 40.2 in Colorado.

Wobbekind said a key test for the economy will be how quickly those who are let go in layoffs and closures can step into some of the open positions that are currently unfilled. That will require employers to keep those spots open as conditions soften.

About 17% of respondents said a recession had already started in the first half of the year, while 45% expected it would start in the second half of 2022 and another 15% expected an economic contraction wouldn’t hit until the first half of 2023.

Almost every respondent said their business was getting squeezed by inflation, and 57% expected to increase wages in response. Exactly half expected to cut costs to combat inflation while 47% planned to pass on higher costs to customers. The Business Research Division at C.U. expects Colorado inflation to average 8.2% in 2022 and then moderate to a 4.1% average in 2023.

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