Colorado Economic Outlook
Summer 2006
Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
Solid Growth
The Colorado economy remains on track to record its third consecutive year of stronger growth, a major departure from the painful downturn experienced during 2001 through 2003. We expect 2007 to be another year of solid performance across the state.
Colorado added nearly 50,000 net new jobs during the most recent 12-month period, a growth rate of 2.2%. Such a growth pace ranks 14th of the 50 states.
Colorado's neighbors within the Rocky Mountain region continue to lead the nation in job creation. Nevada, as usual, ranks first with a 5.2% job growth pace over the most recent 12 months. Idaho ranks second (up 5.1%), with Arizona third (4.7%) and Utah fourth (4.5%). Oregon (3.6%) and Wyoming (3.4%) complete the top six job growth states.
Solid Colorado employment gains (measured by positions added) have occurred in professional & business services (up 12,100 jobs); construction (up 10,300 jobs); and trade, transportation & utilities (up 9,100 jobs). These sectors accounted for nearly two-thirds of net job gains. Other major employment sectors experienced modest employment ups and downs.
A return to a tighter Colorado labor market has occurred during the past year. The state’s jobless rate averaged 4.4% in recent months, the lowest in five years. Colorado employers both large and small are having a more difficult time remaining fully staffed. The issue is most challenging for smaller employers, who typically cannot fully compete with larger firms for skilled workers.
State of the States
The current U.S. economic expansion, now well into its fifth year, has contributed to varying levels of performance among the 50 states. The simplistic comparison suggests that states in the West and the South are enjoying stronger performance, while those in the Northeast and the Midwest have seen less robust growth.
States with significant natural resources, including oil, natural gas, and coal, are doing well. Many states more dependent on manufacturing are struggling.
Rocky Mountain and Pacific Northwest states lead the way in employment growth. By comparison, much of the region was hit very hard by the recession of 2001, the horrific events of September 11, and the initially weak economic recovery.
Conversely, the nation's auto-dependent industrial heartland of Indiana, Michigan, and Ohio, as well as much of the Northeast, are mired in the bottom 10 states as measured by employment gains. Hurricane-impacted Louisiana & Mississippi also make the bottom 10 list.
Solid U.S. economic performance has led to more than 40 states now running budget surpluses. Many states are dealing with the greatest surge in tax revenue ever recorded.
State and local tax collections rose 10.2% last year to a record $1.1 trillion, according to the Census Bureau (USA TODAY). Many states that suffered from serious budget challenges 2-4 years ago are now flush with new money.
Investor Shift
Residential and commercial real estate markets on both coasts and in the Southwest roared in recent years. However, an investor shift is underway.
Investors with bags of money have shifted their focus to markets with greater relative values, and are snapping up office buildings, raw land, multi-family properties, individual homes, etc. Many communities are seeing major increases in outside investment dollars, including rising investment in Colorado.
Rising Home Values
Improving Colorado economic performance has led to a modest rise in Colorado
home values. The latest data of the National Association of Realtors noted the
median (half cost less, half cost more) U.S. home price rose 10.3% to $217,900
during the 12 months ended March 31, 2006. However, the median price was down
3.3% from the prior quarter's $225,300 median price. The median Denver-Aurora
home price rose 3.5% to $244,200. The median home price in Boulder rose 6.9%
to $360,400, while homes in Colorado Springs rose 8.9% to $209,400.
The more comprehensive data from the Office of Federal Housing Enterprise Oversight (OFHEO) saw the average U.S. home price rise by 12.54% in the 12-month period ending March 31, 2006. The average Colorado home rose 5.10% in price, ranking 45th of the 50 states.
According to the OFHEO report, the average Denver-Aurora home price rose 3.24%, while home values in Boulder rose 2.53%. Homes in Colorado Springs rose 7.03% in price, while homes in Ft. Collins-Loveland rose 3.90%. The average Grand Junction home rose 11.16% in value, with homes in Greeley up 2.74% and homes in Pueblo up 5.56%.
One relationship that bodes well for Colorado real estate appreciation in 2006 and 2007 is the fact that the average Colorado home rose only 24.78% over the past five years. By comparison, the average American home value rose 57.28%.
The Outlook
Tighter Colorado labor availability will limit growth somewhat over the next 18 months. Even so, we continue to expect Colorado to rank among the top quarter of states in job growth. The wide diversity of employment gains, with considerable job additions in the highest wage sectors, bodes well for the Colorado economy.