New index gauges confidence of Colorado?s business leaders

BOULDER ? Neither the national nor state economies will rebound in the second quarter of 2003, according the first Business Leaders Confidence Index (BLCI) recently released.

Compass Bank and the University of Colorado’s Leeds School of Business have teamed to create a quarterly index that measures how business leaders in Colorado view specific economic factors relative to their industry, on both state and national levels.

Results of the first index indicated that business leaders are less pessimistic about the performance of their industry than they are about the state and national economies.

The survey began prior to the start of the war in Iraq and concluded before the war ended. Uncertainty about the duration of the war in Iraq, rising energy prices, volatile stock prices and weak labor markets were cited by those surveyed as reasons to be cautious about the future, according to the report.

Those surveyed were split on whether the state’s budget revenue shortfalls would negatively impact their industries, and a majority of respondents speculated that the Federal Reserve would cut interest rates another one-quarter to one-half percent in the short term.

The index revealed that employment levels have stabilized but would not increase during the second quarter.

?It’s a grass roots temperature of what’s happening in the economy,? said Scot Wetzel, Colorado president, Compass Bank, Denver. In comparison to other indexes that tend to take an annual historical perspective, the Business Leaders Index is a quarterly and real-time measurement of the current economic environment, he added. Instead of surveying economic experts on a national level, the index is also different because it compiles opinions from everyday businesspeople.

?Nothing out there is similar that looks at industrywide information for the state of Colorado,? agreed Gary Horvath, marketing analyst with the University of Colorado-Boulder.

Industry categories are based on the North American Industry Classification System and range from agriculture and educational services to health care/social assistance and finance/insurance. Total, there are between 15 to 20 different industry categories.

Participation in the index is by invitation only via e-mail or direct mail notification. The goal is to survey businesspeople who lead firms with sales of $5 million or more.

The process for collecting data involves allowing panelists access to an online survey via a special Web site, www.blcindex.com, during the last month of each calendar quarter. The survey contains questions about next-quarter expectations and is designed to take less than 10 minutes to complete.

?The index has only seven questions, but they are very pointed,? Wetzel said.

Questions asked are in the areas of sales, profits, hiring, expenditures, interest rate expectations and state/national economic outlooks. Answers are compiled, then reported on a scale from one to 100, with 50 being neutral.

The format of the survey is the result of a 14-month developmental effort between Compass Bank and Texas A&M University and the University of Alabama, where as partners they have established a Business Leaders Confidence Index for each state.

When deciding to bring the index to Colorado, the bank looked at several potential players and then approached the University of Colorado at Boulder. ?As a business school, their curriculum and staff resembled our other partners,? Wetzel said. ?Plus, they had already heard about (the index) from the other universities? and wanted to be involved.

The Leeds School of Business handles the surveying and number crunching, while Compass Bank is in charge of marketing the index and its results. The costs for creating and maintaining the index are absorbed internally by both the school and bank, but exact costs are not tracked.

A team of information technology employees from the University of Colorado designed the Web site and is responsible for maintaining it. According to Horvath, the team began to work on the site last fall. ?It took three to four months to design the Web site to ensure that it worked,? he said. Although it is not usual for a business school to use the Web to collect data, this index marks the first time that the Leeds School of Business has used such methodology.

?Business leaders can use (the index) in the planning process for their business,? Wetzel said. For example, a business leader from a particular industry may say they believe their revenues will be off, so they will be cutting expenses and might not be buying. This type of information would have an effect on the local economic picture and would be pertinent for other local business leaders to know, he said.

Horvath hopes the index eventually will rely on a survey group that includes 400 to 500 people. The first index, however, reflected much fewer opinions. The next survey period for the second Business Leaders Index begins in early June and will last three weeks.

on Facebook on LinkedIn