Colorado Economic Outlook
Spring 2006
Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
Five-Year High
Economic growth within Colorado has continued to strengthen in recent months. Solid Colorado economic performance has been more in line with other states in the Rocky Mountain region, which easily leads the nation in economic vibrancy.
The Colorado economy added an estimated 51,500 net new jobs during the most recent 12-month period, a growth rate of 2.4%. Such a growth pace ranks as the strongest of the past five years.
Job Diversity
Colorado?s goods production sector has added 12,400 net new jobs during the most recent 12-month period, an impressive growth rate of 4.0%. The construction sector has registered sizable growth with 10,900 net new jobs, a solid 7.5% rise in 12 months.
The state?s natural resources & mining sector added 2,400 net new jobs, a powerful 15.2% rise. The state?s beleaguered manufacturing sector lost 900 jobs, down 0.6%. However, we do expect Colorado to register manufacturing job gains in 2006.
The state?s service providing sector added 39,100 net new jobs during the past year, a rise of 2.1%. Colorado?s trade, transportation & utilities sector added 11,700 net new jobs, a growth rate of 2.9%. Colorado?s higher wage professional & business services sector added 9,400 jobs, a 3.1% growth pace.
The state?s leisure & hospitality sector added 5,300 net new jobs…a 2.1% rate. The educational & health services sector added 4,800 net new jobs, a 2.2% growth rate. The financial services, government, and other services sectors added 10,100 new jobs collectively.
The other major employment sector still losing jobs is the information sector, with a loss of 2,200 additional jobs, down 2.8%. Continuing weakness in this sector has led to the combined loss of more than 30,000 jobs since 2001.
Tighter Labor
Stronger employment growth is traditionally associated with tighter labor markets. This time around is no exception. The Colorado unemployment rate averaged 4.6% over the last three months, the lowest level in five years.
By comparison, the Colorado jobless rate averaged 5.0% in 2005, 5.6% in 2004, 5.2% between 2001 and 2003, and a record low 2.7% during 2000. The jobless rate averaged 4.4% during the 1990s.
Colorado?s tightening labor market will make it more difficult for hundreds of Colorado employers to fill open positions. Pressure is perhaps greatest on smaller employers, which many times cannot offer the same salaries and benefits of larger companies. Many small employers are frustrated in their inability to fill open positions, but also fearful of losing their key employees to other firms.
Healthy Neighbors
The 2.4% net employment gain of the past 12 months ranks Colorado 15th of the 50 states. Even as Colorado data got progressively stronger throughout 2004 and 2005, a similar trend occurred in neighboring Arizona, Idaho, Nevada, and Utah. These Rocky Mountain states now lead the nation in the pace of job growth (see chart below).
Housing Gains
Data from the Office of Federal Housing Enterprise Oversight noted an average U.S. home price rise of 12.95% during 2005. The average Colorado home rose 5.99% in price, ranking 44th of the 50 states. The Mountain Region led the way, with an average 2005 gain of 18.79%. The Pacific Region was second with an 18.75% rise.
The average Denver home rose 4.47% in 2005, with Boulder homes up 4.62%. Homes in Colorado Springs rose 7.66%, with homes in Fort Collins-Loveland up 3.79% and Grand Junction homes up 13.76%.
The OFHEO study also includes price comparisons for the past five-year period. The average American home rose 57.68% over the past five years, but only 28.02% in Colorado.
By comparison, the average home price during the past five years rose by 89.39% in Arizona, 117.29% in California, 49.55% in Idaho, 103.64% in Nevada, and 27.77% in Utah. Such a comparison suggests that homes in Colorado and Utah…with each state now growing at a faster pace…have greater upside potential than homes in many other states. We expect Colorado home prices to outperform those on both coasts and in the SW over the next 18 months.
Colorado Outlook
Modest Colorado economic growth in 2004 gave way to stronger performance during 2005. Positive growth is a major departure from the serious economic downturn of 2002 and 2003, when Colorado registered a net decline of 74,000 jobs.
We expect Colorado employment to rise 2.5%-2.8% in 2006, with slightly weaker performance in 2007. Employment gains should occur in all major sectors this year and next. Stronger home price appreciation seems in store. The Colorado economy is headed in the right direction.
The Big Three
No…not U.S. automakers
…the three guaranteed American growth industries of the next 30-40 years, compliments of me and 78 million other Baby Boomers
Presented in alphabetical order…
…financial planning …health care …leisure & recreation
Financial Planning
Baby Boomers en masse have not saved aggressively enough for our Golden Years. Such a painful reality is one that, in my mind, will drive millions of Boomers to save more diligently in coming years. In fact, recent data from various stock mutual funds has shown a sharp rise in investments, most coming from Boomers.
Millions of Boomers will also shift more aggressive investment money from residential real estate back to stocks. Why? More data suggests that most of the surge in real estate prices on both coasts and in the nation?s SW has run its course.
This reality is one that drives my continuing view that the Dow will reach 12000 later this year. At the same time, the Congress is likely to adopt more savings-friendly legislation in coming years to help both Boomers and younger generations put more money away for retirement.
More and more Boomers will acknowledge that they may not have the necessary skills to develop a sound investment program for the future.
- How much should I save?
- What if I outlive my money?
- What kind of investment return assumptions should I adopt?
- How much can I withdraw annually in retirement?
These anxieties will translate into greater use of investment experts, financial planners, trust departments, etc. In addition, the ongoing shift within corporate America from offering workers ?defined benefit? programs to ?defined contribution? programs puts the onus on workers more than ever before to manage their money…
… The wise among us will increasingly turn to financial experts for help
Health Care
Common sense would suggest that Boomers will play a major role in the expansion of health care services over the next 30-40 years. Such services will include the traditional combination of public and private sector health care providers, clinics, pharmacies, and hospitals.
In addition, you can add greater demand for plastic surgery of all types. Boomers will not go willingly into our senior years… we will fight it constantly…
Vanity of the Boomers? Off the charts!
Rising demand for health care services by Boomers, our parents, and indigents, as well as those with and without health care insurance will strain the system as never before. A recent study from the Centers for Medicare and Medicaid Services projects that total health care spending will rise from 16.2% of GDP in 2005 to 20.0% by 2015 (USA TODAY). While such a rise will be ?good news? in regards to U.S. job creation, it will be ?bad news? in terms of trimming overall productivity and optimizing utilization of resources.
Answer this question quickly…
What is your largest monthly payment obligation?
Most respondents would logically say a mortgage payment. However, for many, the answer is, or soon will be, their monthly premium for health care. A 2005 Kaiser Family Foundation survey recently estimated the average premium for family medical coverage is now $10,880 per year…or $906 monthly (The Wall Street Journal)…
…Ouch!
As we know all too well, monthly premiums have been rising faster than incomes for many years. As health care costs continue their unrelenting march higher, we are slowly, but surely, moving unavoidably in the direction of a government-sponsored, nationalized health care system…
…I find the thought truly scary
Leisure & Recreation
Travel, golf, cruising, hiking, spas, motor homes, second (and third) homes,
etc., etc., etc.…you get the picture…
Boomers will redefine retirement, just as we redefined all other aspects of life. Stronger dedication to the first two growth industries discussed above will provide greater flexibility than ever before to enjoy life in our Golden Years.
Boomers will travel the world as no group before them. The sharp rise in ownership of additional homes, timeshares, motor homes, etc. will continue.
One major change that is now underway and will escalate in coming years in a big way is the idea of bridging between full-time employment and retirement. Too many of us have seen a parent, family friend, or neighbor be forced to retire at age 65, when staying on the job was desirable.
Too many of us have seen skilled workers be forced out at 65, only to soon re-emerge as a greeter at Wal-Mart or as one serving fries at a burger joint…
…not so in coming years
Roughly 85% of Boomers say we never want to ?retire,? but instead engage in a process where we work fewer hours in our skills area. The reality today of tightening labor markets, combined with the slowest projected growth of the U.S. labor force in history over the next 20 years, will give older workers more bargaining clout than ever before.
Millions of Boomers will politely ?inform? their employers that as they approach age 65 they will wish to work perhaps three days weekly, or only mornings, or two weeks on…two weeks off, for as long as they choose. Intelligent employers, facing the loss of valued employees, and with limited ability to easily replace talented workers leaving the company, will quietly agree to reasonable worker requests.
Those companies and public sector employers who wish to remain viable and competitive will by necessity soon modify their approach to flexible hours and part-time employment…even for senior people within the organization…
…those that do not will simply cease to exist