After a year and a half of near failing grades, Utah has been pulling solid C's this year and just may edge up to a B before 1988 is history.

That's the report card issued this week by Key Bank of Utah economist Jeff K. Thredgold.After showing some resurgence at the end of last year, "the performance during 1988 suggests increasing employment, increasing personal income and healthy state and local tax revenues," says Thredgold.

Stronger economic growth in Utah during the past nine months can be seen in sharply lower unemployment rates, stronger job creation, an increase in business activity and tax collections and the state's $110 million budget surplus.

The state income tax rebate scheduled for September has come in for some criticism but not by Thredgold, who believes the return of the budget surplus to consumers will "provide added stimulus" to Utah's economy. And he praises legislation restoring a third of the federal income tax deduction on state tax returns and the five percent reduction in personal income tax rates.

Those are all steps in the right direction, says the economist, but what is needed is a couple of giant leaps.

"The governor and the legislature must do more to minimize or eliminate the tax disincentives put into place over the past two years," says Thredgold.

"The sharp increase in state income taxes for middle-income and higher-income people sent the wrong signal to current and prospective residents of the state. The reality of businesses moving into the state or staying in the state has a great deal to do with the tax treatment of the principal people involved within those companies."

Utah's 5.0 unemployment rate is the lowest of this decade, Thredgold points out, and well below the 6.7 percent rate of a year ago. However, he notes, this has as much to do with people leaving the state as it does with increased job creation.

Nevertheless, 11,000 net new jobs were created over the past 12 months, nearly double that of same period a year earlier, and a validation of Key Bank's forecast of a year ago. Service and manufacturing have been the "shining stars" in job creation locally, said Thredgold, with the service sector crating 8,600 new jobs (a 5.9 percent increase) over the past 12 months, and personal business services and amusements creating 5,800 new jobs (an 11 percent hike).

Manufacturing created 4,800 new jobs for a 5.3 percent increase.

Thredgold praised the diversification now found in Utah's economy which prevents downturns in any one sector from creating a serious local recession.

Recent national data placed Utah 48th in the 50 states in per capita personal income, a figure that is skewed because of the large size of Utah families. A more realistic measure, he says, is average income per household, which ranks Utah 33rd among the states at $35,580 or 90 percent of the national average of $39,748.

But even that figure, he said, must be viewed in light of national cost-of-living figures which show overall costs of living here slightly below the national average - 98.3 based on a national average of 100.

Based on quarterly composite cost-of-living figures published by the American Chamber of Commerce Researchers Assoc., Salt lake City was below the national average in housing costs (89.4 percent), groceries (93.1), and utilities (96.4), while above the average for transportation (104.9), health care (100.5), and miscellaneous (105.0).

Thredgold said the study showed Provo has the lowest cost of living of any city in the national survey with a composite index of 87.5.