Already wobbly coming into the year, confidence among Colorado business leaders has suffered a blow more severe than any delivered during the Great Recession.
“With all the uncertainty right now there is a lot of pessimism,” said Brian Lewandowski, executive director of the Leeds Business Research Division at the University of Colorado Boulder, on a conference call Tuesday.
Business confidence helps determine whether investment and hiring will take place or when it is missing, whether a pullback in spending and job cuts are likely. During the early days of the outbreak, there was a faint hope that employers might hold the line and not shed their workers.
But the quarterly Leeds Business Confidence Index shows morale is shot and business leaders see dark days ahead. That could help explain a record surge in initial unemployment claims.
CU has been surveying business leaders in the state every quarter for 17 years, going back to the aftermath of the tech and telecom bust. Between March 1-20, surveyors heard back from 400 executives in the state regarding their expectations for the state and national economies, sales and profits, and hiring and business spending.
Any score above 50 indicates an expectation of growth while below 50 indicates an expectation of contraction. After finally crawling back to 50.8 in the first quarter as trade war concerns eased, the bottom fell out of the index, which went all the way down to 29.7.
A decline like that is unprecedented. Those surveyed had the least hope in the second quarter for the U.S. outlook, 21.8, and more for the Colorado economy, 28.8. Expectations for sales, profits and hiring in their industries all scored in the low 30s. Optimism was higher for the third quarter with a score of 38.2, although that is hardly a ringing endorsement of what is to come.
What is remarkable is not only the depths of pessimism the index captured but how quickly sentiment has turned. Coming into the year, a key worry for business leaders in Colorado was finding enough help and retaining workers, Lewandowski said.
Executives in many of the hardest-hit industries have pivoted 180 degrees, scrambling to cut payrolls fast enough to preserve cash and survive.
But those job cuts are likely to crush consumer confidence in an economy where consumers account for 70% of spending. That will hit future sales. A negative spiral is now in place.
The Conference Board reported Tuesday that its measure of U.S. consumer confidence hit its lowest level in three years, going from 132.6 in February to 120 in March, but it may not be fully capturing what is going on.
“March’s decline in confidence is more in line with a severe contraction — rather than a temporary shock — and further declines are sure to follow,” said Lynn Franco, senior director of economic indicators at The Conference Board, in a news release.
A daily confidence survey from Morning Consult is recording a much more severe drop in consumer confidence, however, and economic forecasters keep adjusting their outlook lower. Goldman Sachs had earlier estimated the U.S. economy would contract 24% in the second quarter. On Tuesday, it said that a 34% decline was more likely.
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