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Colorado Economy Remains Strong

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National Economy

The Colorado economy is outperforming the U.S. economy. Recent strength in the U.S. economy is a positive sign for Colorado.

Nationally, employment remains strong. The non-seasonally adjusted data shows that an average of 230,000 jobs have been added each month through seven months. Most likely the U.S. will add about 2.5 million jobs this year.

On a positive note, the labor force participation rate appears to have bottomed out.

Real GDP increased by 4.0% in Q2. The reasons for the increase in the real GDP were:

  • Stronger personal consumption.
  • Greater private inventory investment.
  • Increased residential fixed investment.
  • Stronger non-residential fixed investment.
  • Improved state and local government spending.
  • Greater demand for exports

Factors that offset the growth were:

  • Increased demand for imports.
  • Decreased federal government spending.

An area of potential concern is construction. Hopefully the industry is taking a breather after its recovery from the Great Recession. The number of building permits issued over the past year has been flat.

In addition, the housing market is cooling off. The rapid appreciation in housing prices is tapering off.

Both manufacturing and services have been solid since the second half of 2009. At least this is being reflected in the growth of the GDP.

Implications of the National Economy on Colorado

These indicators have several implications for Colorado. The short-term outlook points to stronger personal consumption, which bodes well for retailers and tourism, particularly if Mother Nature cooperates by bringing early and frequent snow for the ski season.

Stronger retail sales will add to the coffers of the state and local governments, which should point to continued increases in government spending. This would benefit everything from schools to infrastructure.

On the downside, lower or constrained government spending could impact the military and federal facilities and laboratories. This has the potential to impact the universities and federal facilities in Colorado Springs, Denver, Boulder, and the Northern Colorado metro areas.

The unemployment rate and the number of unemployed continue to trend downward; however, critical labor shortages are developing in many occupations. This is particularly critical to high-tech industries.

Labor shortages are impacting all industries in Northern Colorado which is experiencing rapid growth as a result of the extractive industries boom. Workers are being raided from other companies and industries, which will ultimately drive wages up.

The Colorado construction market still appears to be solid and the value of residential housing is growing, albeit at a slower rate than last year. At the same time the Dow Jones Industrial Average is about where it was at the end of 2013.

Appreciation in the housing and equity markets play into consumer confidence. If consumers feel their house and investments have appreciated, their wealth on paper is greater, and they are more likely to purchases goods and services.

Colorado Economy

The following five sectors account for about 45% of total jobs in the state, yet they are responsible for almost 75% of the jobs added this year.

  • Accommodations and Food Services
  • Health Care
  • Construction
  • Professional and Scientific Services
  • Retail Trade.

All of these jobs are important to the state for various reasons.

  • About 10% of all jobs are in the Accommodations and Food Services sector. AFS has accounted for about 20% of the jobs added this year. As a major component of the tourism sector, AFS is an important part of the economy in all 64 counties.
  • Just under 11% of the state’s s jobs are in the Health Care sector. This category has accounted for about 15% of total jobs added this year. The Health Care sector affects our quality of life and plays a key role in the economy in all 64 counties.
  • The Construction industry is small by comparison, with about 5.0% of total state jobs. Approximately 12% of the job growth is in this category. A segment of the Construction jobs are tied to the growth of the extractive industries.
  • A portion of the Professional, Scientific, and Technical jobs are a key part of the state’s advance technology industries. They account for about 8% of the jobs and 11% of the job growth.
  • Finally, Retail Trade jobs account for almost 11% of total jobs and 11% of total job growth. The retail sector is critical to most local governments because a majority of their revenue is derived from retail sales taxes.

Through seven months of 2014, the average job growth is about 67,300 greater than the same period in 2013.

Long Term Unemployment Remains Uncomfortably High

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Since the end of the Great Recession in July 2009, the unemployment rate has fallen from 9.5% to 6.2%. In addition, the country has added 8.8 million jobs.

There are two ugly truths about the workforce that are seldom discussed in connection with this good news.

  • The first ugly truth  is that there are about 9.5 million unemployed in the U.S, a decline of about 5.3 million from the end of the recession. That is the good news. The bad news is that there were only about 6.7 million unemployed prior to the Great Recession.
  • The second ugly truth is that almost one-third of the total unemployed have been out of work for 27 weeks or more, a decrease from 45%. By comparison, between 15% and 20% of the total unemployed were out of work between June 2005 and August 2008.

On paper the Great Recession ended five years ago. In reality the number of unemployment and the percentage of long term unemployment are inconvenient truths five years later.

long term unemployme

 

Lackluster Wage Growth Continues

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A lot has been written about the lack of significant U.S. wage growth since the end of the Great Recession. Quite frankly, the abundance of qualified workers looking for jobs has not incented companies to raise wages.

Since the end of the Great Recession in July 2009, the unemployment rate has fallen from 9.5% to 6.3%. In addition, the country has added 8.8 million jobs. This decline in the unemployment rate and the increase in the number of jobs has occurred at a painfully slow rate. As a result there has been minimal pressure to increase wages in many sectors.

Median usual weekly earnings of the nation’s 106.6 million full-time wage and salary workers were $782 in Q2 2014 compared to $776 in Q2 2013. When inflation is accounted for (2.1% CPI), this wage rate represents a slight decline in wages.

Ten of the 22 two-digit occupation codes have unemployment rates below 5.0%, including computer and math (15), architecture and engineering (17), management (11), business and finance (13) and healthcare practitioners (29). Eventually demand for workers in these occupations will drive increases in wages. As well, rapid growth in sectors such as the extractive industries will drive direct and indirect industry wage growth.

This is just another sign of how painful the recovery from the Great Recession has been for some Americans.

There has been a lack of significant wage growth

 

 

 

 

Occupations with High Unemployment Rates

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It is a good sign the overall unemployment rate is trending downward, especially for occupations that have had an unemployment rate above the national average.

There are 22 SOC (Standard Occupational Classification System) codes. Seven of these occupations have had unemployment rates greater than the national rate, 6.3%. The unemployment rate has declined in 6 of the 7 categories.

There are about 3.5 million unemployed workers in occupations with unemployment rates above 6.3%, compared to 4.4 million a year ago. Many of these positions are easier to fill than those with lower unemployment rates because they do not require a college degree. On the job training or certifications are often required for some of these positions.

Having said that, it should be noted the construction industry is facing shortages in specialized areas in certain parts of the country. This is particularly true in Northern Colorado with the rapid growth of the extractive industries.

The overall downward trend in the unemployment rates is expected to continue. As a result the occupations with higher rates are expected to see lower unemployment rates in the months ahead.

unemployment rate

U.S. Occupations with Moderate Unemployment Rates

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There are 3.2 million unemployed workers in occupations with unemployment rates between 5.0% and 6.3% (the U.S. NSA rate for June). A year ago, there were 3.9 million unemployed workers in these occupation categories.

Overall there are 22 two-digit SOC (Standard Occupational Classification System) codes for occupations. The above-mentioned occupations are in 5 categories. Over the past year the number of unemployed workers dropped in 4 of the 5 occupations. At the moment labor shortages are less prevalent in these occupation categories than the SOC codes where the unemployment rate is less than the natural rate of unemployment.

Some of the jobs in these segments (SOC 19 Life Sciences and SOC 25 Education) require higher education degrees. A portion of the Life Sciences and Production occupations are found at primary employers. The Office Support and Sales occupations are common to all industries and typically require on the job training.

The continued decline in the unemployment rate for these occupations is a sign that the economy is faring well.

unemployment rate

Declining Unemployment Rate Not Always a Good Sign

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Generally, it is good news that the unemployment rate is trending downward, however, in some instances labor shortages are on the rise in some occupations.

There are 22 SOC (Standard Occupational Classification System) codes. Ten of these occupations have unemployment rates less than the natural rate of unemployment, which is assumed to be 5.0%. In addition, the unemployment rate has declined in 8 of the 10 categories.

There are about 1.7 million unemployed workers in occupations with unemployment rates below 5.0%, compared to 2.2 million a year ago. It is not possible to fill many of these occupations in a short period of time because they require a college degree.

The escalating labor shortages are often occurring in primary employers and advanced technology companies. At some point, companies will either lose business or be forced to offshore it if there isn’t a sufficient number of trained workers to meet their needs.

occupational unemployment rate less than 5%

 

 

 

Strong U.S. Economy Bodes Well for Colorado

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The U.S. economy got off to a horrendous start with weak employment in January and -2.6% real GDP growth in Q1. There has since been enough improvement in Q2 for the Federal Reserve to announce it will end QE3 in October. As well, interest rate hikes are likely to occur in 2015, which is good news for some and bad news for others.

It appears the Fed has satisfactorily unwound the quantitative easing program, something many economists feared might not happen at the time it was put in place. Today, most members of the Fed are bullish on the economy, at least for the remainder of 2014. Several members have expressed short-term concerns because retail sales, healthcare spending, and residential construction are underperforming.

A strong U.S. economy bodes well for Colorado.

The equity markets have been volatile in 2014, but the Dow has passed 17,000 and continues to establish new record – highs. Improved equity markets have increased the personal wealth of Coloradans and given them reason to remain optimistic about the growth of the economy.

Through the first half of 2014, U.S. wage and salary jobs have been added at a slightly faster pace than 2013. On average 188,000 jobs were added each month during 2013. By comparison, an average of 194,000 jobs have been added for the first six months of 2014 compared to the first half of 2013. (Source: non-seasonally adjusted data).

Nationally, the unemployment rate continues to drop. It has declined from 6.7% at the end of 2013 to 6.1% at the end of June. A year ago it was 7.5%.

In addition, the number of unemployed continues to decline, dropping to 9,474,000 in June. This is down significantly from 11,747,000 a year ago. By comparison, there were 15,333,000 unemployed in April 2010 at the height of the Great Recession. On the other hand there were 6,731,000 in March 2007 just prior to the Great Recession. Despite the improvement, there are still a number of people struggling to find work.

A similar situation exists in Colorado. Unemployment continues to trend downward, but the number of unemployed remains higher than desired. It has decreased from 6.2% at the end of 2013 to 5.5% in June. Unfortunately, about 150,000 workers remain unemployed. While this number is decreasing at a painfully slow rate, it is about 60,000 greater than the low point in April 2007, the low point prior to the recession.

While the decrease in unemployment is a positive sign, some industries such as construction, manufacturing, and segments of high-tech are struggling to find trained workers. In smaller metro areas such as Weld County there will be a domino effect as higher paying jobs in the oil and gas industry may pull workers from local manufacturers, hotels and restaurants, and construction companies.

The situation is slightly different for some rapidly expanding high-tech industries that require specialized talent (software, technicians, machinists, etc.). Talent attraction is a necessary option for supplying trained workers for these rapidly growing companies. This can be a challenge because there are national shortages in key occupations for the high-tech industry. It is important for Colorado to “train their own” but at the same time Colorado must continue to attract workers from other states.

Through the first six months of 2014 Colorado has added 67,000 jobs compared to the same period last year. Looking ahead, Colorado will continue to see strong growth through the remainder of the year. In certain parts of the state, that growth will occur as an indirect result of the extractive industries and agriculture. In the metro areas, it will be driven by broad-based growth across many industries. The leading areas of growth will continue to be tourism, construction, health care and sectors that are related to advanced technology.

 

It is Time to Bury the Colorado Paradox

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Many years ago, the Colorado paradox was contrived as a way to draw attention to Colorado’s low high school graduation rates.

The paradox is explained as follows: Colorado has one of the most highly educated work forces in the country, yet Colorado is at the lower end of the rankings for high school graduation rates.

The two facts have been tied together for the purpose of shaming policy makers for not providing greater, if not unlimited, funding for Colorado education.

The factors that cause Colorado to be a highly educated state are not responsible for the low graduation rates. If anything, there is more likely to be an inverse relationship between these two variables rather than a positive relationship.

It is no accident that Colorado has a highly educated workforce:

  • Many primary jobs have higher statewide multiplier than most jobs. This means the addition of primary jobs (with highly educated people) will result in the addition of many more support jobs (which may not require a high school or college degree).
  • Forty-seven of the 64 counties are rural. They have a lower level of education and an older population. In other words, people older than 50 who have lived in a rural community all their lives are not likely to need a high school or college education degree and they probably won’t get one. This is not a bad thing. Their happiness and success is not determined by their level of education.
  • The Office of Economic Development and International Trade (OEDIT) has actively recruited companies such as Vestas, Sun, Level 3, and Arrow Electronics. There are many jobs at these companies that require bachelor’s degrees. When these companies moved to Colorado, they brought many workers with them, which in turn created jobs for other Coloradans. As these companies became established they have recruited workers from local colleges and universities.
  • Denver has been identified as a city that attracts highly educated younger workers. They want to move to Denver, live in a loft, work at a company in downtown Denver that pays well, play in the mountains, and live in a state where marijuana is legal. The state is appealing to highly educated workers because of the its lifestyle and its mix of companies.
  • The tourism industry (which is part of OEDIT) markets Colorado as a place to live, work, and play. Some of the people who come here to ski, ride bikes, hike, smoke dope, raft, etc. want to come back and live here. If they have the money to visit Colorado, they are likely to be highly educated and able to afford to live here.
  • Many years ago, officials restricted the number of out-of-state students. They have since decided to allow more international and out-of-state students and raise out-of-state rates disproportionately. This has increased the diversity of their student population and has been a significant source of much needed revenue. It has also increased the number of out-of-state college students who decide to stay here and work.
  • Colorado is a small state. The state’s MSAs have colleges, universities, and federal labs that have a high percentage of workers with college degrees. As the population increases, the number of highly educated workers at these facilities will not increase proportionately with the population growth.
  • Even If Colorado had the best education system in the universe, it would be impossible for it to meet the needs of the public and private workforce. During the Go-Go Nineties the state added almost 700,000 net jobs with gains in all sectors, except Natural Resources and Mining. During the Lost Decade, only 8,500 net jobs were added. For that ten year period, there were net job losses in 5 of the 11 sectors. The state has to import talent do deal with the volatility in the workforce caused by fluctuations in the business cycle. For example, an economic case can be made that it is a wiser investment of scarce resources to import 100 machinists than it is to try to build the infrastructure to train them here.

There are many good reasons for importing talent and the state has a lengthy track record of doing that. That is a good thing. At the same time, there are many good reasons for strengthening the education system so the state produces a higher percentage of high school graduates and a greater number of in-state college graduates. That is also a good thing.

It is time to put the fallacious Colorado paradox in the closet with beanie babies, floppy drives, and Nehru jackets.

Strong U.S. Job Growth in First Half of 2014

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After an inauspicious start to the year, there has been strong U.S. job growth for the subsequent five months. The BLS presented the country with the ideal Fourth of July gift by announcing that total nonfarm payroll employment increased by 288,000 workers in June.

The sectors adding the greatest number of jobs were:

  • Professional and business services
  • Retail trade,
  • Food services and drinking places
  • Health care.

More importantly, July represents the fifth consecutive month that the month-over-the-prior-month change was above 200,000. This is the first time that has happened since the end of the Great Recession.

The June unemployment rate fell to 6.1%, down from 7.5% a year ago. Sadly, the number of unemployed has only declined to about 9.5 million.

Many economists believe strong U.S. job growth is on tap for the remainder of the year.

Strong U.S. Job Growth

 

 

Northern Colorado Leads MSA Job Growth

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The Northern Colorado Metropolitan Statistical Areas (MSAs) are leading job growth for Colorado. Through five months of 2014, the leaders in MSA job growth were Greeley and Fort Collins.

The MSA job growth rates for five months follow:

  • Greeley 5.4%
  • Fort Collins 3.5%
  • Boulder 3.1%
  • Denver 2.8%
  • Pueblo 2.1%
  • Grand Junction 1.4%
  • Colorado Springs 1.2%

The rate of growth for the state was 2.9%.

The MSA job growth for five months follows:

  • Denver 35,800
  • Boulder 5,200
  • Fort Collins 4,900
  • Greeley 4,700
  • Colorado Springs 2,900
  • Pueblo 1,200
  • Grand Junction 800.

For the first five months of 2014 Colorado added about 67,100 workers compared to the same period in 2013. About 11,600 were outside the seven MSAs.

As expected Denver added the greatest number of jobs. The percentage of MSA job growth follows:

  • Denver 64.5%
  • Boulder 9.4%
  • Fort Collins 8.8%
  • Greeley 8.5%
  • Colorado Springs 5.2%
  • Pueblo 2.2%
  • Grand Junction 1.4%

Combined, the Northern Colorado MSAs added 17.3% of all jobs. The state’s seven MSAs accounted for about 83% of total job growth in the state for this period.

Though most of the state’s land mass is rural, most of the job growth is in the seven MSAs.

MSA Job Growth for Colorado