Author: horvath

Colorado Unemployment Rate Tops the U.S.

horvath

On March 10th, the Colorado Office of Labor Market Information (LMI) announced that the statewide seasonally adjusted unemployment rate reached 9.1% in January. By comparison, the national rate dropped to 9.0%. The last time Colorado’s rate was higher than the U.S. was September 2005.

These results are further indication that the state is lagging the nation in its recovery. Over the past year, the
national rate has declined, while the state rate has increased slightly.

A review of the 64 counties shows that 35 have a rate less than the state (9.9% non-seasonally adjusted). In
several counties with small labor forces there is unemployment of about 20%. In other words, both urban and rural counties have not been spared.

Colorado has 7 Metropolitan Statistical Areas (MSA) that cover 17 counties and account for 86% of the labor force. The unemployment rate (non seasonally adjusted) in 9 counties is less than the rate for the state.

A review of unemployment rates by MSA shows that the Denver-Aurora is the same as the state, whereas Boulder-Longmont and Fort Collins-Loveland fall below the state. The remaining four MSAs have rates (Greeley, Pueblo,Colorado Springs, and Grand Junction) above the state.

In addition, Colorado has seven Micropolitan Statistical Areas (MCAs) that cover 8 counties. About 5.5% of the
labor force works in these locales.

Five of the seven MCAs have unemployment lower than the state average (Durango, Edwards, Fort Morgan, Silverthorne, and Sterling). On the other hand, unemployment in Canon City and Montrose is well above the state average.Unemployment in 5 of the 8 counties is below 9.9%. In the remaining 39 rural counties, 21 had unemployment rates lower than 9.9%.

The aggregate rate of unemployment was greatest in the MSAs (9.94%), followed by the MCAs (9.70%), and the rural counties (9.58%). About one-third of the counties have unemployment below 8.0%.

On a more positive note, limited job creation began in the second quarter of 2010. If that growth continues, the state rate is likely to follow the national trend, and decline as the year progresses.

©Copyright 2011 by CBER.

Michael Porter Highlights Colorado’s Strengths and Weaknesses in New Study

horvath

Harvard Business Professor Michael Porter is widely recognized for his research in the competitiveness of cities, states, regions, and nations. His studies have emphasized clusters, specialized skills, infrastructure, and commerce as distinguishing factors that delineate the prosperity of these areas.

Most recently Porter measured the performance of clusters within each of the states at the National Governors Association Winter Meeting 2011 (February 26). At that meeting he talked about strategies that would allow the states to become more competitive in the future .

In addition, Porter prepared economic profiles for each of the 50 states. The 50-slide PowerPoint presentations, which were released at the NGA meeting, are formatted in a way that allows for easy comparisons between the states.

For example, it is to match Colorado’s biotech cluster against others in the nation. In 2008, Colorado was ranked 25th in biopharmaceuticals, with 2,032 employees and 11th in medical devices with 13,440 workers.

Each presentation begins with a performance snapshot with a position and trend ranking, by quintile, in five key areas. As well, Porter identified the “strong” clusters for each state.

Colorado’s overall prosperity rating was in the second quintile; however, it was rated in the 4th trend quintile. Essentially the state has strong output per capita; however, it is trending downward. This might suggest Colorado’s competitive position might be in jeopardy.

A second area of possible concern is labor mobilization (labor force/civilian population). On a positive note, Colorado is in the top ten; however, it is in the fourth trend quintile. Again, this is a strength that is trending downward.

There is better news for Productivity (average private wages) and Innovation (Patents per 10,000 workers). Colorado was ranked in the second quintile in both strategic categories. From a trend perspective it was also in the second quintile. These are areas where the state has maintained its strengths and remained competitive.

Finally, the state was ranked in the second quintile for cluster strength and in the top trend quintile. This points to increased strength, as defined by greater market share, in its “strong clusters”.

Porter identified Colorado’s top five clusters as:
• Business Services
• Distribution Services
• Entertainment
• Oil and Gas Products and Services
• Aerospace Vehicles and Defense.

The presentation highlights subtle strengths and weaknesses not mentioned in this brief overview. As such, it is recommended reading for any one interested in understanding the opportunities and challenges Colorado might face moving forward.

 

©Copyright 2011 by CBER.

Has the Colorado Job Creation Machine Stalled?

horvath

Most analyses of Bureau of Labor Statistics (BLS) employment data report net change in the number of workers. For example, Colorado lost about 25,000 jobs in 2010.

BLS also produces data series, based on the Quarterly Census of Employment (QCEW – private sector only), that report the following employment flows:
• employees added (establishments were opened); in 2009 this total was 101,869.
• workers added (firms currently in business); in 2009 this total was 369,773.
• employees lost (establishments contracted); in 2009 this total was 472,895.
• workers lost (firms closed); in 2009 this total was 111,574.
The sum of the first two categories measures gross job gains, whereas the sum of the latter two categories is gross job losses. In 2009 there was a gross gain of 471,642 jobs and a gross loss of 584,469 jobs.

The net change in employment is the difference between job gains and job losses. In 2009 the net change in employment was -112,827 workers. Total QCEW private employment for 2009 was 1,828,955 workers.

The magnitude of the net jobs lost is striking. It is a result of reduced job creation and increased job losses – the perfect storm on steroids. It should also be noted that in both 2008 and 2009 more jobs were lost by firms closings than were added by firms that were opened.

The following points stand out in an analysis of the jobs gained and jobs lost data:
• During the “go-go 90s” there was a high level of gross jobs lost and an even higher level of gross jobs added. There was a high level of job churn accompanied by strong net gains in employment.
• For the period 2002 through 2004, weak gross job gains were offset by much stronger gross job losses. There were net job losses of about 50,000 workers for this period.
• Gross job gains were comparatively weak for 2006 through 2008, although the state added about 170,000 net jobs over that period. There was a net increase in employment because of a decline in the number of gross jobs lost. In other words, job churn subsided. Workers were content to stay in the jobs they held at the time and fewer jobs were created, which increased competition for the available openings.
• It is especially disturbing to see the decline in the number of employees working for firms that were opened.
At this point, data for 2010 is available through mid-year. The good news is that there seems to be significant improvement in the number of gross jobs lost. On the downside, there is not corresponding improvement in the number of gross jobs gained.

For the moment it appears that Colorado’s wild-west entrepreneurial job creation machine seems to have stalled!

©Copyright 2011 by CBER.

Lack of Small Business Growth Holding Back Recovery

horvath

The National Federation of Independent Business  survey results for February 2011 provide mixed signs about the economic recovery. Although the NFIB Index of Small Business Optimism posted a slight gain in January, the magnitude of this increase was not significant.

On a positive note, the 4th quarter GDP recorded growth of 3.2% and consumer spending was up 4.4%. While the upward movement of these indicators is good news, it does not reflect the considerable challenges facing many small business owners.

Key findings from the February survey were:
• Sales were improved.
• The outlook for sales is more optimistic.
• Inventories are higher, a sign of better things to come.
• Firms have become more confident about raising prices.
• Price increases must be dealt with delicately in the near-term.
• Fears of deflation have eased.
• The outlook for profits is brighter; however, small businesses are not enjoying the same growth as large businesses.
• Many small businesses are not in a strong enough position to support moderate hiring and capital spending.
• Almost all firms felt their credit needs were met or that they were not interested in borrowing.

Finally, survey respondents identified their single most important problem (see table below). As has been the case throughout the recession, the lack of sales, i.e. weak consumer activity, continues to be at the top of the list. Taxes and government red tape follow in the second and third position.

The lack of growth of our country’s small businesses is one reason why this recovery has been so slow and painful. Looking ahead, significant growth of the country’s small businesses is necessary for the U.S. to reach pre-recession employment levels.

To download the full report go to http://www.nfib.com/research-foundation .

©Copyright 2011 by CBER.

Hickenlooper Proposes Closure of Fort Lyon Correctional Facility

horvath

Governor Hickenlooper recently proposed closing the Fort Lyon Correctional Facility as part of cost cutting measures to bring the state budget into balance. The facility employs roughly 200 workers.

For those in the metro area companies come and go and the loss of a company with 200 employees often goes unnoticed, unless a person works there. Approximately 1.2 million people work in the Denver-Aurora-Broomfield MSA, so a loss of 200 jobs would be 0.02% of total employment- not even a bleep on the radar. Bent County residents obviously have a different perspective.

A short lesson about the county will provide insight into their point of view. Bent County is located in Southeast Colorado east of Pueblo, between Otero and Prowers County. Approximately 6,500 people call the county home. Between 2000 and 2009, Bent County population actually increased by about 650 people, or an annualized rate of 1.2%. While this is less than the rate of growth for the state, at least it is positive. Not all rural counties in Colorado have seen their population expand over the past decade.

A review of Census data (Quickfacts) shows that there are about 2,000 households in the county and 2,400 housing units. There is a higher concentration of minorities (Black, American Indian, and Hispanic – terms used by the Census Bureau ).

About 65% of the population (which include prison inmates) are male. As is the case with many other rural counties, Bent has a lower concentration of people under the age of 18 and a higher percentage of workers over the age of 65.

In 2008, median household income for the county was about $33,000 compared to $57,000 for the state. As might be expected from these income levels, approximately 29% of the population lives below poverty level.

With that background let’s look again at the importance of the correctional facility. Fort Lyon is Bent County’s second-largest employer. (Note: Many Colorado rural counties are the home to correctional facilities).

Data from the Colorado Office of Labor Market Information  (QCEW) reported that in 2009, Bent County has 1,303 covered workers (workers on payrolls who paid unemployment insurance) in 88 establishments. Only 560 are private sector employees.

At that time the top employment sectors were as follows: local government (451), state government (234), retail (68), hotels and restaurants (65), federal government (58), health care and social assistance (49), and finance and insurance (45). In December, 2009 the county unemployment rate was 8.7% (LMI). The loss of 200 employees in this economy would be devastating!

Should Governor Hickenlooper rescind his recommendation to eliminate the Fort Lyon facility? If so, what other programs can be cut or eliminated to keep the facility in operations? There is no right answer and there is no winner in this situation.

It’s a tough time to be a governor!

 

©Copyright 2011 by CBER.

For Many Coloradans Inflation is Real

horvath

Do you feel like your paycheck doesn’t pay as many bills as it did several months ago?

For the past couple of years, economists have expressed concerns about both inflation and deflation. In other words, inflation has been low.

Over the past decade the Denver-Boulder-Greeley Consumer Price Index (CPI) has expanded at a modest annualized rate of 2.1% (this rate is used as a proxy for the state), slightly lower than the U.S. rate of 2.4%. More recently, the past two years, inflation has been almost non-existent, 0.6% both in Colorado and the U. S.

In some cases, the Lost Decade has forced companies to market their products differently in order to retain sales and remain profitable. For example, restaurants may have held prices constant, but made the portions smaller.

The brief analysis that follows looks at annualized rates of growth of the Colorado CPI for the period 2001 to 2010.

Let’s take a look at apparel. While the emperor may have no clothes, most people have been able to afford an adequate wardrobe at a reasonable price. For the decade, clothing costs have risen by an annualized  rate of 0.9% and prices in 2010 were less than 2007.

The price for household furnishings has declined since 2004. For the decade the annualized change in inflation has been -0.5%.

So far, so good if buying clothes and updating your household decor have been a priority for you; not so good if you owned a clothing or furniture store.

Housing prices, which is a dominant component of the CPI, have remained constant for the past three years. For the period, prices for shelter rose at a compound rate of 1.3%.

On the other hand, food and beverage prices have increased at a compound rate of 2.3%, slightly higher than the rate for all goods and services. After sharp increases in 2007 and 2008, prices have decreased slightly.

Recreation prices have risen at a compound rate of 3.0% for the decade, bad news for the active-minded population of Colorado.

Medical care has grown at a compound rate of 3.9% over the past decade. For the family of four this is noticeable, while a healthy single person who avoids hang-gliding and race car driving is unlikely to notice.

Finally, we will take a look at electricity, utility (piped) gas service, and motor fuel. Each of these areas has experienced extreme volatility over the past decade, often posting double-digit swings in either direction.

Electricity has increased at an annualized rate of 3.9%, gas service 1.9%, and motor fuel, 5.6%. The steep increase in the latter is partially responsible for increases in food, beverage, and recreation prices.

As can be seen, the impact of inflation varies based on a person’s lifestyle. Those who eat, play, drive cars, and go to the doctor will have felt the pinch of inflation more than people with a different lifestyle. These trends are likely to continue in the months ahead. (For more information on the CPI-U check out the Bureau of Labor Statistics Website ).

©Copyright 2011 by CBER.

Colorado’s Bottom-Up Economic Development Strategy

horvath

The first week in February Governor Hickenlooper (call me “John”) hosted the ninth stop in his Bottom-Up Economic Development tour across Colorado. For about two hours, the region’s top economic developers discussed job creation, economic development, and steps for increasing government efficiencies.

The most frequently discussed topic was transportation and the top priority was to complete FasTracks in a timely and cost effective manner. In addition leaders made a case for completion of the final leg of the beltway (between Broomfield and Golden) around the city, expansion of commercial air, maintenance of our bridges and highways, and reduction of congestion along I-70 into ski country.

Panelists felt that innovation and the attraction/retention of primary jobs was critical if we are to maintain our regional and national competitiveness. They also cited the need to have a well-trained workforce and an efficient, accountable, and adequately funded education system. As well, it is imperative that Coloradans work together to maintain the quality of life that makes the state so attractive. This will require leaders to address issues related to our water supplies, develop parks and recreation areas, invest in infrastructure, and utilize the state’s unique assets to attract commerce.

The metro area’s economic diversity was evident as leaders spoke in support of industries and clusters endemic to their region. For example, they addressed the need for the state to be more “military-friendly”, consider construction of nuclear power plants, understand the importance of refineries, realize the value of our construction and extractive industries, and support gaming and tourism.

As the Bottom-Up discussions continue, it would be beneficial to reflect on past economic-development successes. For example, consider the public-private partnership, the former Colorado Advanced Technology Institute (CATI). During the late 1980s, CATI was established to guide the development of science and technology and the growth of select high-tech clusters. Specifically, the group’s work laid the groundwork for the state’s photonics, materials, hardware, software, telecommunications, and bioscience clusters. While it may not be appropriate to resurrect CATI as it existed, there is merit in having the an organization that would fill many of CATI’s roles in fostering long-term growth.

Four years ago, a state job cabinet was formed, town meetings were held across the state to gather input, and plans were put in place. While that effort was well intended, it did not have the desired impact. Hopefully this Bottom-Up Planning approach with be more successful.

A well-thought out economic development plan couldn’t come at a better time. Colorado employment remains below the 2001 peak and it will be years before state payrolls return to the pre-Great Recession high mark.

©Copyright 2011 by CBER.

The Colorado Budget Challenge 2011 – Where to Cut?

horvath

For the next two months Colorado legislators will be dealing with the two-edged sword known as the balanced budget amendment.

During lean fiscal times, the amendment forces state senators and representatives to make difficult choices in this zero sum game. They have been faced with similar challenges since 2001 as growth in General Funds Revenue has not kept pace with increased demand for services.

For example, if you were a legislator, which of the following would you eliminate or reduce funding for?
• Social Service – Would you reduce or eliminate funding for single moms and lower income individuals to help them defer transportation costs so they can travel to work?
• Economic Development – Would you reduce or eliminate an incentive program that would retain or bring jobs to Colorado, foster growth in state output, and generate revenue for government entities?
• Health Care – Would you cut back or eliminate funding for a health-care program that would reduce services to elderly? The reduction in state funding would also decrease federal funding by a similar amount.  It is a tough time to be a state legislator.

On a positive note, the balanced-budget amendment means that Colorado is not having to borrow money from the Federal government to continue basic operations.

The table below, highlights the source and magnitude of the challenges facing the state government as it is forced to deal with increased demand and reduced revenue. The table compares key data sets for 2001 and 2009. Highlights of the table are:
• The Colorado population increased by about 700,000 people.
• K-12 enrollment is up 76,000 students.
• Despite tuition increases, enrollment at the state’s colleges and universities has grown by more than 21,000 students.
• The prison population is up by about 6,000 inmates.
• The number of Medicaid recipients almost doubled, up 226,000.
• Employment levels were very volatile. The 2009 average was only slightly higher than the 2001 average.
• General fund revenues remained virtually flat (not inflation adjusted).
• Growth of general funds will be constrained by the severity of the Great Recession.

Clearly, the state does not have a stable fiscal model for being competitive in the global economy. The rough ride will continue well into the future.

©Copyright 2011 by CBER.

1 in 6 Colorado Jobs are Construction or Construction-Related

horvath

The following is an excerpt from Colorado’s Construction Industry – Impact Beyond the Hammers and Nails  olorado’s construction and related industries employ one-in-six private-sector covered workers, yet almost 60% of the net jobs lost between 2007 and 2009 were in these sectors.

What type of economic activity is necessary to generate enough construction and construction-related activity to recoup these losses, particularly given the state of Colorado’s housing and commercial markets? (Note: this does not suggest that construction is primary or export industry or that is could or should be).

A financial analyst might suggest that the risk or volatility associated with the construction industry could be reduced if Colorado had a larger, more diverse economy. Therein lies the paradox. Because Colorado is a growth state, it is necessary to have a construction industry to support the current base of five million people and build the homes and buildings that would support a larger, more diverse economy. The Colorado State Demography Office projects continued population increases in the range of 1.5% to 2.0% for the extended future. (Population projections can be found on the State Demography Office website ).

Even with the recent reduction in state construction workers, the 2009 location quotient is 1.29, down from 1.44 in 2001. Because the industry is not considered a primary or export industry, at some point the location quotient will eventually revert to 1.0. At that time Colorado will have a concentration of construction workers comparable to most other parts of the country. Keep in mind that this correction will likely include a comparable adjustment in the related industries identified in this study.

Construction is necessary for the expansion and maintenance of the Colorado economy. It is essential that economic development, public, and private leaders understand the relationship between construction employment, its related sectors and the overall economy. That includes awareness of the volatility of the industry and the likelihood that construction employment will ultimately return to a location quotient of 1.0.

©Copyright 2011 by CBER.

Impact of Tax Reduction Package (Tax Holiday) on Colorado

horvath

The recent tax cut package passed by Congress is expected to raise real GDP by .6 to 1.2% points depending on the economist making the projections. As a result, projected Real GDP growth for the nation is expected to be in the range of 2.3% to 4.0%.

The lion’s share of the benefit lies in the short-term reduction of the Social Security payroll tax rate paid by
employees. For 12 months, that percentage will be reduced from 6.2% to 4.2%.

This is often referred to as the FICA tax holiday. The federal government does not actually make payments, they simply collect less revenue.

The following is a back-of-the napkin look at the impact of this part of the tax holiday on Colorado:

Let’s start with the following assumptions:
• Colorado has a covered workforce of 2.2 million people.
• Total covered wages are approximately 100 billion.
• About 85% of the workforce (private sector + federal employees) pay FICA taxes.

From these assumptions we can derive the following:
• About 1.87 million workers will benefit from the tax cut (2.2 million *.85).
• The total wages impacted will be $85 billion ($100 billion total state wages *.85)
• The “cost” of the program to the federal government for stimulus in Colorado, or the maximum amount of
stimulus for Colorado is $1.7 billion ($85 billion *.02)
• Each worker will receive about $900 per year, or $75 per month ($1.7 billion/1.87 million workers).

To calculate the impact to the state it is necessary to make another set of assumptions.
• Because payments are disbursed over a period of a year, rather than in a lump sum; it will be assumed that
slightly less than 1/3 will be invested, saved, or used to reduce debt.
• Slightly more than 1/3 will be used to purchase services (doctors, dentists, massages, etc.).
• Slightly more than 1/3 will be used for retail purchases.
• The Colorado sales tax rate is 2.9%.
• Because Colorado is a home rule state, sales tax rates for cities and districts vary based on location. For
ease in computation it will be assumed that the average rate of combined municipal and district sales taxes is 5.1%.

From this set of assumptions the final set of calculations show the following:
• $500 million will be invested, saved, or used to pay down debt (this will benefit the consumer).
• $600 million will be used to purchase services (sales taxes are not paid on these expenditures).
• $600 million will be used to purchase retail goods (sales taxes will be paid on these expenditures).
• The state will receive $17.4 million in additional sales tax revenue ($600 million * .029).
• The municipalities and special districts will receive about $30.6 million in additional sales tax revenue
($600 *.051).

Let’s put this $1.2 billion “investment in the Colorado economy” in perspective.
• The 2009 Real GDP for Colorado was about $252.7 billion. The $1.2 billion infusion of money into the
Colorado economy is approximately .5% of the 2009 Real GDP. Total costs of the program (to the federal government)  are almost $1.87 billion.
• The state is facing a shortfall of about $1 billion. The tax holiday will generate about $17 million.

While these efforts to jump start the economy will provide some assistance in the short-term, there will be a
significant long-term cost to the federal government for the program. Will this effort to stimulate the economy
result in sustained economic growth or will it simply be a variation on past themes and only have a short term impact? How will this stimulus effort shape the discussion for the upcoming 2012 elections? These and other questions will be answered over the next 18 months.

©Copyright 2011 by CBER.