Colorado Economic Outlook
Summer 2008
Written
by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
Colorado Economic Outlook
Still Tickin’
Colorado’s economic growth pace has slowed modestly in recent months,
impacted by flat U.S. economic performance, weak Colorado home building activity,
soft home prices, consumer caution tied to constant negativity from the national
media, and high energy prices. Even as it has slowed, however, Colorado continues
to rank among the top handful of states in the growth rate of employment.
The state’s job creation pace was a bit lackluster in recent years when viewed against powerful employment gains in neighboring Rocky Mountain States. However, former high flyers Arizona and Nevada are in recession. Idaho is flirting with its own downturn, while Utah’s pace of employment growth is one-third that of a year ago. Maybe slow and steady does win the race.
Job Gains
The Colorado economy added roughly 35,000 net new jobs during the most recent 12-month period, a 1.5% gain. Such growth currently ranks fifth in the nation behind Wyoming, Texas, New Hampshire, and Utah.
Colorado’s recent employment rise does somewhat lag that of calendar years 2005, 2006, and 2007, when the state enjoyed gains averaging 50,000 net new jobs annually. Modest additional slowing is likely over the balance of the year before an expected improvement in employment performance during 2009.
The state’s overall goods production sector has seen total employment decline modestly during the past 12 months, with gains in natural resources & mining partially offsetting job declines in construction and manufacturing. Colorado’s service providing sector has accounted for all net job additions during the past year. A handful of sectors each added 6,000-9,500 net new jobs, including trade, transportation & utilities; education & health services; professional & business services; leisure & hospitality; and government.
The most significant change of the past year has been the continuing slowdown in new home construction, with current depressed levels of new activity the weakest in a generation. An excess supply of new homes available, combined with high levels of existing homes on the market, suggest that new home construction activity will remain weak well into next year.
Breathing Room
Colorado’s tight labor market has loosened up modestly, versus tighter availability during 2007. Colorado’s unemployment rate averaged 4.5% during 2008’s
first five months.
By comparison, the Colorado jobless rate averaged 3.8% in 2007, 4.3% in 2006, 5.0% during 2005, and 5.3% during 2001-2004. Colorado business owners and managers have been frustrated in many cases during the past 18 months in their inability to fill open positions with qualified people, while wary of losing key employees to other firms.
External Factors
While some Colorado residents may feel that the state is largely insulated from the outside world, developments in the housing and mortgage industries tell a different story. Negative media reporting, weak home prices, wider credit spreads, more limited credit availability, and tighter lending standards are all at play across the U.S. and within Colorado.
Various national magazines and newspapers constantly berate the housing market with a view to consumers of “Why would you consider buying a home today when they will be cheaper in 6-12 months?” Such negative reporting has done a major disservice to the nation’s real estate industry.
Estimates of American home values vary widely. The Office of Federal Housing Enterprise Oversight (OFHEO) noted recently that the average U.S. home value fell 3.1% during the 12 months ending March 31, 2008. A five-year measure of home values suggested an average rise of 38.88%. The OFHEO data noted that the average Colorado home value rose 2.29% during the 12 months, with a five-year rise of a modest 18.22%.
The OFHEO data includes only conventional conforming purchase and refinance transactions of single-family homes. As a result, it does not include transactions of higher-priced homes wherein much of the nation’s housing weakness has been centered.
The widely followed S&P/Case-Shiller index of home
values saw prices fall an average of 14.4% in 20 major cities during the
12 months ended in March 2008. The National Association of Realtors noted
recently its estimate that the median home value (half cost less, half cost
more) declined 8.0% during the 12 months ended in April. Other estimates
of Colorado home values suggest modest price declines.
Adding to housing frustration is the fact that average mortgage interest rates are roughly one-half percent higher versus U.S. Treasury note rates (or yields) than was the case during 2001-2006. In addition, many aggressive mortgage lenders have closed their doors (see U.S. Insight for additional discussion), while many more traditional lenders have tightened lending standards, some resulting from regulatory pressure.
Colorado Outlook
A national fixation on U.S. economic weakness and home price declines in many
markets has negatively impacted the Colorado economy. Even as it has slowed,
however, Colorado’s pace of job creation ranks with the nation’s
strongest. Some additional slowing within the Colorado economy seems likely
over the balance of the year, before a return to more vibrant growth in
2009.