The state's economic health is on the way to recovery with a prognosis of the first increase in taxable sales in two years, according to a new forecast by the Utah State Tax Commission.

In a 39-page forecast of the state's retail sales, retail services, business investments and utility sales for 1988, the commission predicts that by the end of the year those key economic indicators will have jumped 4.5 percent.Taxable sales represent as much as two-thirds of the state's economic activity, according to commission forecaster Doug Macdonald. One of the two other major components of the economy, exports, is also up, Macdonald said, although the other, government purchases, is lagging.

Taxable sales declined during the past two years, 1.6 percent in 1986 and 1.5 percent in 1987. An increase was recorded in taxable sales for 1985, but it was just 2.3 percent.

An increase in the total amount of Utah payrolls, attributed to the reopening of steel and copper plants by Geneva Steel and BP Minerals along with growth in computer-related manufacturing, is credited for much of the boost.

In the last four months of 1987, the total amount paid for non-farm jobs in the state rose 7 percent. That's the highest quarterly increase in three years, since an 8.7 increase was measured in the last quarter of 1984.

Quarterly increases in 1988 are expected to fluctuate from as high as 5.7 percent to as low as 2.4 percent. During 1986 and 1987, quarterly increases were as little as 0.5 percent.

More income means more money to spend, so it's not surprising that the major share of the increase in taxable sales predicted for 1988 will come from retail sales, which are expected to jump 6 percent or a total of $409 million over 1987.

That jump in retail sales includes almost a 14 percent increase in car and truck sales, according to the forecast. Sales of so-called non-durable goods - those that last less than three years - are forecast to go up 4.4 percent in 1988. The sale of food, clothes and other non-durable goods accounts for two-thirds of all retail sales.

Building, garden and furniture stores will see a 2.4 growth in sales, the forecast predicted. The rate of growth in these areas falls behind other types of retail sales because new housing starts are expected to be down.

The forecast is less specific for taxable business investment and utility sales, predicting only "some firming" of the 20 percent decline experienced by these indicators between 1984 and 1987.

A general increase in U.S. manufacturing equipment investment, expected in 1988 because of the falling dollar, and the recovery of the state's mining industry could help slow the decline, the forecast says.