Colorado Economic Outlook
Spring 2009
Written
by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
MISERY LOVES COMPANY
The Colorado economy is suffering the same serious recession disease experienced by the vast majority of states, as the highly negative impact of impaired domestic and global financial markets, damaged consumer and corporate confidence, and domestic and global recession has taken its painful toll. Economic weakness across the state is likely to continue into 2010.
The weakest economic performance in the Centennial State in a generation is in contrast to modest economic growth during the prior five years. Those who believe Colorado is largely insulated from developments across the nation and around the globe merely need look at events of the past 12 months for a different conclusion.
Roughly 46 of the 50 states are now in recession, with those states with abundant oil and gas still, for the moment, avoiding the recession label. Sharply lower prices for oil and natural gas suggest that such states may not be immune from recessionary forces for long.
EMPLOYMENT PAIN
The Colorado economy suffered a net loss of 61,200 jobs over the
most recent 12-month period, a decline of 2.6%. Similar, or more severe, employment
contraction is found among many of Colorado’s neighbors, with the exception
of energy-rich Wyoming.
Job losses across the Colorado economy have left few
sectors untarnished. The state’s goods production sector has seen 25,600
jobs disappear during the past 12 months, led by sharp declines in construction
and manufacturing employment.
The state’s larger service-providing sector has not fared any better. Service sector losses have totaled 35,600 during the most recent 12-month period, led by sharp declines in professional & business services; trade, transportation & utilities; and financial activities. The education & health
services sector continues to add new jobs.
Colorado’s jobless rate has also moved sharply higher. The unemployment rate averaged 6.9% over the past two months, and is likely to move higher as 2009 progresses. In contrast, the state’s jobless rate averaged 4.6% during 2005–2008.
TOO MANY HOMES
Colorado’s home building market has suffered the same indignities
of overbuilding as found in many markets across the nation. Colorado housing
starts are not likely to grow by any real measure until excess inventories of
unsold homes are cleared from the market. Still, excessive overbuilding and home
price appreciation in Arizona, California, and Nevada have led to much greater
pain and downward price adjustments in those states than found across Colorado.
A key factor boosting the demand for Colorado housing in coming years will be one of the nation’s fastest rates of population growth. Solid levels of net in-migration expected during the next few years should lead to rising demand for new homes and multi-family properties.
Serious U.S. recession and associated regional economic weakness has also led to a modest decline in the number of skier days and overall winter sports spending in Colorado and across the West. Solid indications of renewed U.S. economic growth later this year should see the 2009-2010 ski season rebound.
OUTSIDE ISSUES
One factor contributed greatly to the sharp contraction in the Colorado economy during 2008, as well as the nosedive in U.S. employment and economic output during the past eight months. It was the highly emotional appeal during mid-September 2008 by Federal Reserve Chairman Bernanke and then-U.S. Treasury Secretary Paulson to the U.S. Congress for $700 billion in emergency funding to stabilize U.S. financial markets and major financial institutions.
Domestic and global financial markets had already been under severe duress for a year. During mid-September, the American consumer was vividly told that “the sky was falling,” a factor which led to a sharp plunge in consumer confidence and consumer spending, and led directly to the sharp Colorado and U.S. economic contraction in subsequent months.
The Treasury Department and the Federal Reserve, among other governmental entities, are now “throwing mud at the wall” to see what might stick in regard to steps to boost the economy and shaken financial markets. The recent announcement that the Federal Reserve will buy more than $1 trillion of U.S. Treasury notes, government agency-issued mortgage-backed securities, and debt issued by Freddie Mac and Fannie Mae have led 30-year fixed-rate conventional mortgages to some of their lowest levels on record.
More attractive fixed-rate mortgages, combined with the lowest level of many short-term interest rates on record, could see U.S. housing markets move much closer to stabilization by the end of the year, a critical factor in more broad-based U.S. economic stabilization.
COLORADO OUTLOOK
A return to modestly positive U.S. economic growth later this year or
early in 2010, combined with more fluid financial markets, would pay great dividends
in Colorado and many other states now dealing with recession. The Colorado economy
is highly unlikely to emerge from recession without these two preconditions.
Over the longer term, the state should again rank among the nation’s best
performers.