Category: Colorado Economic Forecasts

Cber.co Colorado Economic Forecast 2012 – Continued Improvement

horvath

The economy is fragile and there are a number of variables that could alter any forecast. At the risk of sounding like a broken record, 2012 will look a lot like 2011. Colorado will experience below average growth for another year. Cber.co is projecting that we will see real GDP growth of 2.1% to 2.5% in 2012, with employment growth of 27,500 to 37,500 in Colorado.  Go to Cber.co for the 2012 Colorado Economic Forecast.

The sectors of the economy can be evaluated in three groups: solid growth, limited growth, and volatile growth. A summary of these analyses for each of the groups follows.

Solid Growth Sectors (About 41% of total employment)

These sectors posted stronger growth in 2011 than any time in the past two decades. Growth will taper off slightly 2012 with the addition of at least 1,500 jobs in each of the following sectors.

Tourism
Private Education and Health Care
Professional and Scientific
Extractive Industries
Wholesale Trade
Employment Services
Higher Education

In total, these sectors will add 26,500 to 32,500 net jobs in 2012.

Limited Growth Sectors (about 26% of total employment)

In 2011 these sectors individually recorded minimal change in their number of employees. Significant change is unlikely in a slow economy.

Personal (Other) Services
Utilities
Retail Trade
Corporate Headquarters (MCE)
State (Not Higher Education)
Manufacturing
Transportation & Warehousing

Combined, these sectors will add 3,000 to 9,000 net jobs.

Volatile Growth Sectors (33% of total employment)
These sectors have either bottomed out, are near the bottom, or have turned the corner. Combined they will shed fewer jobs than in 2011.

Construction
Financial Activities
Information
Federal Government
B-to-B (Not Employment Services)
Local Government (Not K-12)
K-12 Education

Combined, there will be a change of -6,000 to 0 net jobs.

2012 Employment Outlook

Because the economy is still not on a solid foundation, it is reasonable to provide three scenarios for the summation of the above groups: optimistic, most likely, and pessimistic.

Optimistic Scenario
U.S. Real GDP 2.6%+
More than 37,500 Colorado Workers or More

Most Likely Scenario
U.S. Real GDP 2.1 % to 2.5%
+ 27,500 to 37,500 Colorado Workers

Pessimistic Scenario
U.S. Real GDP  1.6% to 2.0%
Less that 27,500 Colorado Workers

If probabilities were to be assigned to each of these scenarios, they would be as follows:
Most Likely   55%
Pessimistic 25%
Optimistic 20%.
At the time the forecast for 2012 was prepared, there was slightly more downside risk.

To access the Cber.co 2012 Colorado Economic Forecast click here.
©Copyright 2011 by CBER.

Leeds School Annual Forecast Calls For Slowdown in Colorado Employment Growth

horvath

The Leeds School of Business released its 47th annual business forecast, calling for the U.S. economy to grow at a faster rate and a modest slowdown in the growth rate of the state economy in 2012. The report projected a sharp increase in U.S. Real GDP growth, from 1.8% to 2.4%. Surprisingly that gain translates into an increase of only 23,000 workers in Colorado. This follows on the heels of job gains of 27,500 in 2011.

Job losses are projected for the Manufacturing, Information, and Financial Activities sector. After manufacturing gains in 2011, it is disappointing to see the projected return to negative growth. Evidently renewable energy, which sparked manufacturing growth in 2011, will either flatten or taper off in 2012. Consolidation in the other two sectors will drive further cutbacks.

According to the Leeds School, 2012 growth will be driven by the Health Care and Professional Business Services sectors. Smaller gains will occur in tourism and construction. It is encouraging to see the Construction sector on the positive side of the ledger again.

Although, the 2011 preliminary employment estimates will not be updated until March 2013; the Leeds estimate of 27,500 additional jobs is reasonable. In evaluating their projections for 2012, it is interesting to see how they fared with their 2011 forecast.

1. The Forum (UCCS) error -2,500
25,000 jobs (10/2/2010).

2. OSPB error -3,200
24,300 jobs (12/2010).

3. BBVA Compass error -5,500
22,000 jobs

4. (tie). Legislative Council error -7,500
19,900 jobs (12/2010).

4. (tie). BBER error -7,500
(15,000 to 24,999) (10/2010).

4. (tie) Jeff Thredgold’s Small Business Index   error +7,500
(33,000+) (Autumn 2010).

7. CSU Economics Class error – 8,500
19,000 jobs (11/16/2010).

8. CU Colorado BEOF error -17,400
10,100 jobs (12/6/2010).

9. Demographer’s Office error -27,500
No growth (11/5/2010).

10. Moody’s/Dismal.com error +28,500
56,000 jobs (3/2011).

Like most forecasts, the Leeds projections have historically understated periods of growth and decline. If the Leeds pattern of error continues in 2012, then job gains above 30,000 might be more realistic. For additional information on forecast accuracy click here.

 

©Copyright 2011 by CBER.

State to Add 28,000 Jobs – State Demography Office

horvath

On November 4, State Economist David Keyser unveiled his annual economic forecast at the 29th Annual State Demography meeting. In his report Keyser stated that the economy remains fragile, but that jobs will be added an a slow rate in 2012. Growth will be in the range of 1.0%, or 28,000 civilian jobs. He projected that more than 50,000 jobs would be added in 2013.

Unemployment will remain high through 2012, about 8.4%. There will be an insufficient number of jobs added to lower the rate significantly. In addition, labor participation rates are low. As jobs are created at a faster rate, the participation rate will pick up. That in turn, will keep the unemployment rate at a high level.

The painfully slow recovery will be extended by the lack of growth in per capita personal income. Stronger income growth is needed to spur on increased demand for goods and services. Real PCPI is projected to grow at 2.8% and 2.2% respectively in 2012 and 2013. On a positive note, the state inflation rate will remain around 2% in 2012 and bump up to 3% in 2013. Rising energy prices will play a role in the increase.

Looking ahead to 2012, Keyser sees tourism and retiree driven jobs as bright spots. As well, agriculture and the extractive industries, particularly oil and gas, will have strong years. In fact Keyser also sees an uptick in construction, as both single family and multifamily permits will more than double. Total permits will approach 30,000, up from about 13,000 in 2010. It should be noted that the mix of permits will be different than in the past. It will include a greater concentration of multifamily units. On the downside, Keyser points to weakness in investment and wealth driven jobs.

Click on State Demography Office for further information about their work.

 

©Copyright 2011 by CBER.

A Tale of Two Colorado Employment Forecasts

horvath

Edgar Fiedler, Assistant Secretary of the Treasury for Economic Policy under Nixon and Ford said, “If you have to forecast, forecast often.” Fiedler’s words are particularly relevant during volatile economic times.

Consider the case of two prominent Colorado forecasts. Both USA Today/Moody’s Colorado and the Leeds School of Business at the University of Colorado prepare composite and sector forecasts for the state.

The two employment forecasts are at opposite ends of the spectrum.  Moody’s is most likely too high (2.6%) and CU is hopefully too low (.5%).

The most basic test for measuring forecast accuracy is to determine whether the forecast correctly predicts the direction of the forecast (is it positive or is it negative). CU projects 5 of the 14 sectors will post job losses, while Moody’s says 1 of 14 will shed jobs. Said differently, there is a difference in opinion about the direction of the sectors on these 6 sectors.

There is also great disparity in the magnitude of the forecasts. Projections for only two sectors are remotely similar, with a difference of less than 1% points.

Through Q1, the Office of Labor Market Information reports employment gains of 0.7%.

The country would have to experience a mild double dip to achieve the CU forecast. On the other hand, Colorado would have to add jobs at a rate of at least 3% for the remainder of the year to achieve the Moody’s forecast.

Expect a flurry of forecasts from CU, Moody’s, and others as they try to understand the strength of the recovery.

©Copyright 2011 by CBER.

Colorado Legislative Council – Outlook for the State Improving

horvath

The Colorado Legislative Council (CLC) recently released its quarterly update of the state economy Focus Colorado: Economic and Revenue Forecast. The report was released in mid-March, at a time when it appears that Q1 2011 employment will be approximately 15,000 jobs higher than Q1 2010. It is great to hear that net employment is again trending upward; however, state employment remains below the peak 2001.

Increased employment is good news for the state coffers!

The Q4 2010 forecast pointed to a budget shortfall of $1,015 million. Because Colorado is required to have a balanced budget, it became necessary to significantly reduce spending for K-12 education and other programs.

Over the past year, there has been an increase in consumption and private sector employment that now appears to be sustainable, hence justification for adjusting the revenue forecast  upward. Projections for FY 2010-11 were raised by $116 million, while revenues for the subsequent two years were upped by $99 million and $105 million respectively.

The combination of budget cuts and revenue increases point to a much lower projected shortfall, $450 million, for FY-2011-12. This is good news, but…

Nationally, CLC is calling for real GDP growth of 3.2%, similar to Q4 2010. After three years of net job losses, employment will increase by 0.4% to about 130.3 million jobs. Unfortunately, average annual unemployment for the year will be 8.7%.

At the state level, CLC projects population growth of 1.6% or about 78,000 people. This reflects a reduction in net in-migration to less than 40,000.

Wage and salary employment will post gains of 0.7%, or about 16,000 workers. While this growth is encouraging, it is not enough to significantly lower the rate of unemployment. Unemployment of 8.8% will be slightly higher than the national rate.

Retail sales are projected to record gains of 4.2%; however, inflation (2.3%), will account for more than half of that gain. Retailers will remain challenged to maintain profitability. Finally, single family building permits will be 15,300, slightly higher than in 2010.

The risks to continued growth remain significant. Consumer confidence is fragile and talk about a double-dip has resurfaced. Constraints facing Colorado include a painfully slow housing recovery, rising food and energy prices, and continued concerns about the banking system.

While the picture painted by CLC is certainly not a bright one, it is clearly much more encouraging.

©Copyright 2011 by CBER.

University of Northern Colorado Economic Forecast Points to Slow Growth in 2011

horvath

The economic outlook for Northern Colorado matches that of the state – a slow but, painful recovery, according to Dr. John Green regional economist. In his annual forecast, Green pointed to 3.0% Real GDP growth this year with the possibility of a negative quarter.

On a sobering note he indicated that the labor supply will exceed demand – at least until the last of the baby boomers retires (2029). Green also indicated that the computer revolution has decreased the need for certain occupations, which will maintain a high level of competitiveness in the job market.

Green was not particularly optimistic about the housing market. He felt the housing supply was too high, further price declines are possible, mortgage rates are expected to rise, and that problems within the financial/mortgage industry will remain a problem. Finally he expects inflation to higher in both 2011 and 2012.

Locally, Green’s economic model pointed to flat employment growth in Northern Colorado. He felt that a more likely scenario was for employment to recover slowly throughout 2011 and 2012. Growth will be led by agriculture, the biosciences, clean energy, retail and the hospitality sectors. (On a positive note, NPR recently reported that Vestas plans to add 60 employees at its Windsor facility and begin operations in Brighton in 2011. The Windsor facility has a workforce of about 700 workers).

The high levels of foreclosures will prevent the housing market from gaining momentum. In addition, Green reported that houses under $280,000 are moving whereas more expensive ones are not. On the commercial side, construction is likely to resume in late 2011 at the earliest. Lastly, the number of bankruptcies are on the rise in Northern Colorado.

The NCBR  Economic Forecast was held on Jan 6, 2011 at the University of Northern Colorado campus and also featured Mark Snead, Vice President, Economist, and Branch Executive Federal Reserve Bank of Kansas City – Denver Branch  and Sandra Hagen Solin of The Capitol Solutions Team .

 

©Copyright 2011 by CBER.

Colorado Legislative Council – State Economic Update December 2010

horvath

The recovery of the Colorado economy continues to lag that of the nation, as evidenced in the December 20 release of Focus Colorado: Economic and Revenue Forecast , a quarterly publication of the Colorado Legislative Council . Many of the key economic indicators for the nation were revised upward while there were mixed results in the Colorado update.

The following discussion highlights revisions to key 2011 Colorado indicators:
• With Real GDP growth of 2.9% (U.S.),state employment will increase by 0.9%, slightly less than the September projection. This equates to 19,900 jobs.
• The most notable change is an increase in the 2011 unemployment rate. It was revised upward from 7.6% to 8.4% (Many economists in the state expect this rate to exceed 9.0% and possibly push past the national rate at some point this year).
• With more people on the payrolls, personal income is expected to post a modest increase of 3.1%.
• On the other hand Wage and Salary income will record a meager increase of 1.4%.
• Despite the increase in wages and personal income, projections for retail sales growth was revised downward from 3.1% to 2.5% (It should be noted that this rate of growth does not reflect changes associated with the tax reduction plan passed by Congress).
• On a positive note, the number of home permits was bumped up from 11,200 to 17,200. Continued subpar construction growth is projected beyond 2011 despite population increases in the range of 90,000 to 100,000 people per year.
• Finally, the projection for CPI growth remained at 1.9% for 2011; however, it is expected to ramp up by at least a point in 2012.

Positive factors not mentioned above include:
• Permitting in the oil and gas industry turned upward at the end of 2009 and have continued in that direction.
• While there is optimism within the industry about Colorado’s housing market, it is not yet reflected in the data. If it is any consolation, home prices are faring better in Denver than many other parts of the country.
• Foreclosures remain high, but they are on a downward path.

On the other side of the equation:
• Colorado’s financial sector is plagued with troubled mortgages.
• To illustrate that point, 27% of Colorado insured banks were not profitable at the end of September 2010. This compares to 20% nationwide.
• The state’s lending institutions have high exposure to troubled commercial real estate than other banks in most other states.

While there is good news in the most recent update, it should not be forgotten that the Lost Decade concluded with state employment at a level below the peak in 2001. Despite employment gains this year, it is likely that June 2001 peak employment will be reached again in 2012.

 

©Copyright 2011 by CBER.

Colorado Legislative Council – U.S. Economic Update December 2010

horvath

The December 20,2010 release of Colorado Legislative Council ‘s Focus Colorado: Economic and Revenue Forecast  gives reason to be more optimistic about the performance of the national and state economy in the months ahead. Generally speaking, most key economic indicators received slight upward revisions.

At the national level the following bright spots were highlighted:
• Corporate profits have reached record levels.
• There have been 5 consecutive quarters of economic growth (GDP).
• World trade has bounced back.
• Personal income (wages and salaries, interest and dividend income, business income, rental income, and government assistance) has returned to pre-recession levels.
• Consumer spending has grown at a steady pace.
• Business investment has been a major factor in economic growth.

The following areas of concern about the U.S. have a familiar tone:
• Current economic growth is slower than mid-2009 because of decreased business inventories and the end of stimulus funding.
• Stagnant housing prices, high levels of unemployment, and volatile consumer confidence will limit consumption.
• Credit remains constrained.
• The country needs monthly job growth of 140,00ish jobs per month to keep unemployment from rising. For the past year, average growth has occurred at about half that level.
• While there is reason for optimism, it is likely that the economy will again be a major factor in the 2012 elections.

The recent update reflects minor changes to key national economic indicators for 2011:
• Real GDP remains at 2.9%. By comparison, average output growth for the 1990s was 3.2% followed by 1.8% in the 2000s.
• Employment is projected to grow at a rate of 1.1%, down from the September forecast of 1.2%.
• Unemployment will improve to 9.5%, down from 9.7% in the prior outlook.
• Inflation will increase slightly. The forecast was bumped upward from 1.5% to 1.7%.

This sets the stage for an improved outlook for Colorado in 2011.

©Copyright 2011 by CBER.

Colorado Forecasts In – Tax Legislation will be Game Changer

horvath

A review of the various Colorado economic forecasts for 2011 is encouraging. On a comparative basis, they are generally upbeat. The outlook is for continued improvement in the national economy and ultimately more jobs in Colorado.

Over the past 25 years, the Colorado economy has more closely resembled the U.S. economy (the world’s most diverse). As a result the state’s fortunes have mirrored those of the nation.

For that reason, much attention is given to projections for Real GDP growth. While output is not a leading indicator, Real GDP forecasts provide insight into the factors that will drive change in the national economy in the months ahead.

Overall, most expectations for 2010 have been raised slightly over the past month. The justification for these increases is the buildup of inventories, increased consumption, and improved consumer confidence. These are positive signs that will carry over into 2011.

To review briefly… Currently, most output projections for 2011 are in the range of 1.7% to 3.5%.

On the employment side of the equation, the 2011 outlook range varies from flat, or slightly negative, (Colorado Demography Office, November) to growth in the range of 33,000 employees, or 1.8% (Jeff Thredgold, September). Both OSPB and the Colorado Legislative Council, the two agencies that provide forecasts for the state government, will present their updated forecasts for the state during the second half of the month. CBER takes a middle ground with 15,000 jobs added.

This past week, Congress introduced a potential game-changer.   Legislation has overwhelmingly passed the Senate that would extend the Bush tax cuts, reduce payroll taxes, and extend the unemployment insurance benefits. If passed, this legislation has the potential to increase consumer confidence, spur additional spending, strengthen demand, and ultimately add jobs. (At the state level, this may have the potential the push job growth to the upper end of the above mentioned range – 30,000+.)

The downside is that the legislation will significantly increase debt, potentially worsen income equality, increase dependence on financing from foreign lenders, and reduce potential funding for other essential investments that might stimulate long-term growth such as financial support for aerospace and technology, other scientific research, education, homeland security, infrastructure, and health care.

There are two schools of thought. On one hand, it is believed that addition stimulus is necessary and that this legislation along with the recent quantitative easing will make the difference. At the same time, it has been said that the leaders are determined to buy a good economy without regards to the long-term cost at a time when the only solution is time.

Time will tell.

©Copyright 2011 by CBER.

Forecast Accuracy for the CU Colorado Economic Outlook

horvath

In early December the Colorado Business Economic Outlook Forum (CBEO) will be held in Denver for the 46th consecutive year. The event, sponsored by the Leeds School of Business and BBVA Compass is a forecast of state employment based on the expert opinions of estimating groups for each of the NAICS sectors. Each year, one of the most common questions about the event is, “How accurate are the numbers?”

Reasons for Analysis

In the fall of 2008, I presented a simplistic analysis of the accuracy of the CBEO at the annual AUBER conference (this blog post updates that presentation to include the period 1972 to 2010). The original presentation was motivated by curiosity from estimating group members who wanted to know how accurate their forecasts were.

Questions were also raised from an academic perspective.
• Which is more accurate, a forecast calculated by an econometric model or one determined by committees, based on expert opinion?
• Does financial sponsorship of a forecast by a publicly traded financial institution increase the chance of bias in the forecast?
• An academic paper by Owen Lamont (2001) asked, “Does an experienced research team, with a wealth of knowledge, produce a more accurate forecast or does the added knowledge result in an “arrogance” which may reduce the accuracy of the forecast?

While this simplistic analysis provides insight into some aspects of the forecast accuracy, additional research is necessary to address these issues.

Jobs Gained or Lost

The first test of accuracy measured whether jobs were added or lost (+ or -).

Because an employment forecast is intrinsically a growth forecast, its real value occurs if it can identify the years when jobs are lost.

Colorado employment recorded increases in 34 of 39 years.
• The CBEO accurately predicted growth for all 34 years; however, it inaccurately forecasted growth for three years when jobs were lost.
• Said differently, jobs were lost in five years. The CBEO accurately forecasted 2 of the 5 years, or 40%, when job were lost.

Turns (The key is to accurately predict them)

A second test for measuring the accuracy of the CBEO is to evaluate its ability to recognize turns. A turn is defined by a change in the slope or direction of the trend line (upward or downward). For example, it may change directions from positive to zero or negative.

• There were 17 actual turns in 37 years. During those 17 years, the forecast accurately projected turns 12 of 17 times (12 correct turns, 5 incorrect turns). These errors occurred in 1979, 1987, 1990, 1995, and 1998.
The forecast projected 6 turns during the remaining 20 years when turns did not occur (0 correct turns, 6 incorrect turns). These errors occurred in 1973, 1988, 1989, 1993, 1999, and 2009.

• The CBEO accurately forecasted turns 52% of the time – 12 correct/11 incorrect.

This analysis illustrates the difficulty in preparing an employment forecast. There are clearly challenges in accurately predicting turns, as well as the magnitude of each of the turns. This has been demonstrated by most economists in their projections during the Lost Decade. In the case of the CBEO, its value derives more from the discussions associated with projections for each of the sectors, than the projected changes in total employment.

©Copyright 2011 by CBER.