Colorado Economic Outlook
Winter 2008
Written
by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
Consistent
Colorado’s job creation pace has been extremely consistent during the past three years, with net employment growth running slightly above a two percent average annual pace. Such a job creation rate seems on tap in 2008 as well, with the year’s
second half economic vibrancy likely to exceed the first half growth pace,
in line with expected U.S. performance.
Two percent annual employment growth pales versus the much stronger growth pace during the late 1990s in Colorado. However, that surge in growth was soon followed by the painful downturn of 2002 and 2003 (see chart below). The more moderate growth pace of the past three years does not seem destined to such a history.
Labor ShortfallSolid Colorado employment growth of the past three years has led to sharply lower labor availability, contributing to major challenges to be fully staffed for Colorado employers of all shapes and sizes. The Colorado jobless rate averaged 3.8% during 2007’s first 11 months, after averaging 4.3% in 2006 and 5.6% during 2002-2005.
The Colorado economy added 43,200 net new jobs during the most recent 12-month period, a growth rate of 1.9%. The state’s goods-producing sector saw a net loss of 2,800 jobs over the most recent 12-month period, a decline of 0.8%.
Strong gains in natural resources & mining employment could not offset weakness in manufacturing employment. The construction sector lost 1,000 jobs, with gains in commercial construction activity largely offsetting weakness in new residential construction.
The state’s service-providing sector added 46,000 net new jobs during the most recent 12-month period, a gain of 2.3%. Most of the new jobs added were in professional & business services; trade, transportation & utilities; and education & health services.
It’s
All About Housing
The latest data from the Office of Federal Housing Enterprise Oversight (OFHEO) noted that the average Colorado home (with a conforming mortgage not exceeding $417,000) rose 2.23% during the 12-month period ending on September 30, 2007, ranking 36th in the nation.
Utah, Wyoming, Montana, New Mexico, and Washington occupied the first five positions. The average U.S. home value rose 1.79%. More than 20 states saw average home prices decline during the third quarter.
The OFHEO data noted the average U.S. home value rose 46.92% during the past five years. The average Colorado home value rose 18.28% over five years, suggesting Colorado homes have room to move higher in coming years.
Other national measures of home prices indicate sharper declines in current values, especially for new unsold homes. It could be another year before U.S. housing markets reach equilibrium between excess supply and realistic demand.
Challenges
Colorado has been impacted by four developments which have plagued the national housing market during the past 12-18 months. The first of these developments is the constantly negative tone of the national media in regard to the U.S. housing market. Many people are simply scared to buy a home, hearing frequently that if they wait longer, prices will be lower.
A second factor was the higher level of mortgage rates in 2007. Thirty-year fixed-rate mortgages averaged 6.33% in 2007, versus the 5.99% average during 2003-2006.
A third factor is the excess supply of both new and existing homes for sale in Colorado and around the nation. Near-record inventories of homes for sale greatly lessen the need for additional home construction, particularly for “spec” homes. Homebuilders will need to be aggressive in clearing excess inventories of new homes in Colorado and across the U.S.
A final factor is current credit market anxiety around the globe, particularly the “subprime” mortgage issue. Such anxiety has pushed many domestic real estate lenders to tighten standards, pricing many potential buyers out of the market.
One bright spot for both homebuilders and those seeking to build and occupy a new home was the sharp decline in construction material costs during 2007.
Commercial Strength
While Colorado’s home construction market was sluggish in 2007, a different
story was found in the nonresidential construction market. New office development,
fueled in part by energy firms, was the norm across much of the Front Range
in 2007. Moderate vacancy rates, solid absorption of existing space, and strong
demand by outside investors are a solid foundation for continued strength during
2008.
Colorado in 2008
Continued tight labor availability (especially for skilled workers), modest new job creation, and a soft new home construction market are expected for Colorado in 2008. In contrast, the commercial real estate sector should see solid performance this year.
The state’s longer-term economic potential? Among the nation’s best.