Colorado
Economic Outlook
Autumn 2004
Written
by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Zions Bank
Rebound!
The Colorado economy has rebounded nicely during 2004, following three years
of dismal performance. We expect the state?s economy to continue to strengthen
over the balance of the year, with stronger performance on tap during 2005.
The
state ranked among the nation?s top handful of economic performers during
most of the 1990s. Unfortunately, the state also ranked among the worst
state performers during 2001-2003.
Colorado?s employment strengths in technology, telecommunications, travel, and tourism were major contributors to economic vibrancy during the 1990s as these sectors prospered. However, major weakness in these sectors since 2000, tied to the implosion of the stock market (primarily NASDAQ stocks) and the aftermath of September 11, 2001, led to the weakest Colorado economic performance since the early 1980s.
Colorado has added roughly 17,000 net new jobs during the past 12 months, a modest 0.8% annual growth rate. While current performance is not impressive when compared to powerful growth during the 1990s, it is a major step forward when compared to the loss of 75,000 jobs in 2002 and 2003 alone. We expect a net gain of roughly 20,000 jobs in 2004, with twice as many to be added in 2005.
Good Jobs
Colorado employment gains have primarily been in higher wage sectors
during the past year. Job gains in professional and business services
have led the way, with the addition of more than 11,000 jobs during
the past 12 months. More than 5,000 jobs have also been added in
the education and health care sectors, while the trade, transportation & utilities
sector added 3,500 jobs.
Goods producing employment has remained weak over the past year, with the exception of the natural resource and mining sectors. Construction employment is down roughly 3,000 jobs from a year ago, while manufacturing employment is down almost as much. We do expect employment gains in both sectors in 2005.
The natural resource and mining sectors are doing better as high oil and natural gas prices drive new exploration and production activity. These sectors should continue to do well next year. While total employment in these sectors represents less than 1.0% of total Colorado employment, wages in these industries rank among the highest in the state.
Lower
Joblessness
The Colorado jobless rate has declined this year after reaching high levels
in 2002 and 2003. The state?s jobless rate averaged 5.0% in recent months,
a measurable decline versus the 6.0% average of the two prior years. We expect
the jobless rate to approach the ?mid 4%? range in 2005.
Unemployment rates in Colorado?s largest population centers have dropped, in line with the state?s decline. The Denver metro area jobless rate averaged 5.1% in recent months, with the Boulder-Longmont rate averaging 4.5%. Jobless rates in Colorado Springs and Fort Collins have averaged 5.5% and 4.6%, respectively, in recent months. In each case, recent jobless rates are down roughly 1.0% from the prior year.
Real Estate Vibrance
Colorado?s real estate markets have picked up their pace this year, following
soft performance in 2002 and 2003. Year-to-date home building permits through
July 2004 were up 19.5% in Colorado, versus a 12.6% rise across the nation.
While double-digit price gains of the late 1900s are largely a thing of the past in Colorado, more solid gains seem on tap. Stronger economic performance and associated rising net in-migration should see stronger home price appreciation in coming years.
The Index from the Office of Federal Housing Enterprise Oversight notes that the typical Colorado home appreciated a modest 3.5% in the 12 months ending in June 2004, versus a 9.4% average rise across the nation. The Index also notes a rise in Colorado home prices of 37.8% in the most recent five-year period, versus a 43.6% average annual U.S. gain.
Powerful home price appreciation on both coasts, particularly in California, should see more Californians ?cashing out? of sky-high priced homes and looking for relocation opportunities in Colorado and across the West. The 12-month and five-year gains in California home prices, estimated at 18.4% and 84.1%, are simply not sustainable.
The state?s commercial real estate sector should also see rising absorption and declining vacancy rates as more powerful economic growth replaces the malaise of the past three years. Higher lease rates and fewer properties put up for sub-lease also seem likely.
Colorado Outlook
The period 2001 to 2003 was painful in Colorado, especially following powerful
growth in preceding years. Better performance is now unfolding, with stronger
growth expected during 2005.
Significant employment losses in telecommunications and technology sectors have largely run their course. The travel and leisure sector of the state?s economy has rebounded impressively, with record levels of visitors using the Denver International Airport.
Colorado is benefiting from solid U.S. and global economic growth now taking place, with growth expected to continue. High energy prices are simply a costly development across most of the nation. In Colorado, high prices also lead to renewed economic activity in the state?s rich natural resource sector. The Colorado economy is clearly on the mend.
Employment Trivia
Politically Speaking
Monthly employment reports have been actively scrutinized by both Presidential
campaigns to criticize or validate economic policy in place?
| Roughly 75% of older workers and baby boomers have indicated a preference to continue working full- or part-time well past age 65 |
The President and his supporters have countered that job gains picked up in 2004, following weakness of the prior two years. He points to the addition of more than 1.7 million net new jobs during the past 13 months.
The President?s campaign also notes that the monthly survey of 60,000 households, from which the unemployment rate is derived, tells a very different story. This survey notes that total American employment has actually risen by nearly 1.7 million jobs since the President took office.
U.S.
job creation of recent years has been more in the small business sector
than before. Large businesses are rewarded by Wall Street with higher
stock prices when they cut jobs. New start-ups, expanded small businesses,
consultants, and contract workers are the primary job creators.
The two surveys have differed widely in recent years. The monthly survey of roughly 300,000 medium- and large-size businesses misses substantial job gains tied to new business startups, expansion of current small businesses, consultants, and other self-employed people.
Is one survey better than another? The answer is yes?and no. As more complete information becomes available to the Bureau of Labor Statistics over the next 12-18 months, we will likely find that actual job creation was somewhere between what the two surveys indicated.
Manufacturing Pain
The critical manufacturing sector lost an estimated 18,000 jobs in September,
the worst performance since January. Better news finds that manufacturing
employment rose by a net 88,000 jobs in the prior eight months.
One factor regarding an impending rebound in manufacturing employment is the current level of inventories of goods versus sales. The inventory-to-sales ratio during August (something only economists would get excited about) was only 1.15, meaning that only 1.15 months of manufactured goods were available to meet projected sales, an extremely low number. The all-time low of 1.12 was set last April.
What this means for the economy is that production of goods of many types must be increased in coming months to meet sales expectations in both U.S. and global markets. At times in the past, bloated inventories of goods led to sizable production cutbacks?not so in coming months.
While better news seems in store for manufacturing, the sector has been crushed in recent years. Prior to 2004, the sector lost jobs for 42 consecutive months, with the loss of 2.7 million jobs since early 2001 representing one of every seven jobs that existed at that time?Ouch!
Tough
for Older Workers?
One of the painful challenges of the past four years has been the difficulty
for many older workers of regaining quality jobs following corporate layoffs
and/or numerous telecommunications, dot.com, and other business failures. Between
February 2000 and January 2002, for example, the re-employment of workers between
the ages of 55 and 64 sank from 58.8% to 52.5%, the lowest rate since at least
1994 (The Wall Street Journal).
Stronger economic performance and more impressive job creation since January 2002 suggest this ratio has moved higher. Even so, the challenges of older workers have been painful, with thousands involuntarily taking ?early retirement.?
?But Getting Better
Employment opportunities for older workers will likely rise in coming years
as labor markets become increasingly tight. Millions of older workers will
have greater control over how long they choose to work, as well as how many
hours they work weekly.
The work force is aging quickly. By 2012, workers who are 55 and older will make up about 19% of the labor force, versus 14% in 2002, according to the Bureau of Labor Statistics.
With expected labor shortages in this country for years to come, more employers will offer flexible work schedules, retraining, and health-and-wellness seminars in an effort to attract and retain older workers (The Wall Street Journal). More companies will also find older senior executives preferring to work part-time in order ?to keep one foot in the workplace,? but also to ?have a life? outside of work as they reach traditional retirement age.
Roughly 75% of older workers and baby boomers have indicated a preference to continue working full- or part-time well past age 65. Some see continuing to work as a necessity, as projected retirement savings simply won?t be enough. Others enjoy working, and/or have seen parents and friends retire at 65 and be extremely bored after a short period of time.
The nature of ?work? will change dramatically?