Colorado Economic Outlook
Autumn 2008
Written
by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
Outside Forces
Colorado economic growth has slowed in recent months, falling victim to a painful U.S. recession, dismal new home construction activity, soft home prices, volatile energy and food costs, and the most serious threat to domestic and global financial markets since the Great Depression. The weakest pace of Colorado economic activity in four years is likely to continue over the next 6-9 months, before some improvement is expected.
Slower Colorado economic growth during 2008 is a departure from the stronger performance that occurred during 2005 through 2007. The Colorado economy added an average of 50,000 net new jobs annually during those three years, an average annual gain of 2.2%. In contrast, Colorado employment is rising at half that pace during the most recent 12-month period.
The Neighbors
More subdued Colorado job creation during 2008 is in line with much weaker economic performance in most Western states. Arizona, California, Idaho, and Nevada are all dealing with their own recessions, while New Mexico and Utah have slowed significantly. In contrast, energy-rich Texas and Wyoming currently rank among the top states in net job creation.
Colorado’s new home construction sector remains extremely weak, with a loss of 5,300 construction jobs during the past year. Related sectors supporting real estate sales and real estate finance are also recording job eliminations. The state’s manufacturing sector has lost 4,200 jobs during the most recent 12-month period.
In contrast, the education & health services sector added 9,500 net new jobs during the past year, while government added 7,100 net new jobs. Leisure & hospitality added 5,800 net new jobs, while the professional & business services sector added 4,300 jobs. Trade, transportation & utilities added 2,800 net new jobs during the past 12 months. As one might expect, natural resources & mining
has been the strongest job growth sector, with the addition of 3,400 net
new jobs, a rise of 13.2%.
Labor availability in Colorado has increased during 2008 in response to slower employment creation. The Colorado unemployment rate averaged 5.2% in recent months, sharply above the 3.8% average annual rate during 2007. The jobless rate is likely to move higher in coming months.
Credit Stress
The Colorado economy, like that of all other states, has been severely impacted by higher credit costs and more limited credit availability for homes and proposed commercial real estate ventures. Many aggressive mortgage lenders have closed their doors during the past 24 months, while many others have required larger down payments and more paperwork.
Aggressive and historic moves by the U.S. Treasury Department to help rid large investment and commercial banks of “toxic” real estate assets and replenish working capital should help restore rational domestic and global credit markets, a key ingredient in moving U.S. housing markets into growth mode by mid-to-late 2009.
A number of Colorado commercial real estate projects announced over the past 2-3 years have quietly been mothballed, while others continue on a smaller scale. At the same time, however, a significant number of projects continue to take shape.
Winter Sports
Colorado’s winter sports industry is gearing up for another solid year,
although a weak U.S. economy may temper visitor totals. Colorado recently had
five resorts ranked among the top 15 in North America in Outside magazine. In addition, Colorado enjoyed seven of the top 10 positions in Ski magazine’s
annual rankings.
Costs Of…
One reason new companies and workers have been drawn to Colorado over the years
is the reasonable cost of doing business as well as a more affordable cost
of living than found in many areas across the nation, especially on both
coasts. The August 2008 Colorado “cost of doing business” estimate
of Economy.com was 102% of the U.S. average. Similar costs for Denver and
Colorado Springs were estimated at 100% and 96% of the U.S. average, respectively.
The “cost of living” estimate of Economy.com for Denver was 100% of the U.S. average, with Colorado Springs at 95%. The most recent data from the ACCRA cost of living index registered 104.9 for Denver-Aurora, with Boulder at 125.1 and Colorado Springs at 93.2. Fort Collins-Loveland measured 94.8, with Grand Junction at 101.0. Greeley was 96.5, with Pueblo at 86.5 and Gunnison at 118.8.
Colorado View
Economic slowing during 2008 is a painful reminder that what happens outside
of Colorado’s border can have major positive and negative influence
upon the state and its citizens. Current softer performance should continue
well into 2009.
However, the state’s attractive cost of doing business, strong population growth, employment diversity, and great recreational opportunities should again see Colorado rank among the nation’s stronger performers over a longer time horizon.