Category: Colorado Economy

Got Jobs? Colorado Economy Stalled

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Got jobs?

The Colorado Office of Labor Market Information recently released data that shows that four-month average employment for the state was 12,500 workers above the same period in 2010. The private sector posted a gain of 14,700 employees while total government employment decreased by 2,200.

Over the past four months, a group of industry sectors have increased their payrolls by 32,800 jobs (see chart below). These sectors account for 60% of total employment.

At the top of the list of gainers are tourism (+10,300) and private education  and health services (+9,900). The next three sectors are the extractive industries (+2,800), wholesale trade(+1,900), and higher education (+1,800).

Nationally, the recovery is shaping up differently than in Colorado. The leading U.S. sectors are professional and business services (PBS), tourism, health care, and manufacturing. Job growth in the Colorado PBS and manufacturing sectors seems lackluster compared to the U.S.. Companies in both sectors are part of the state advanced technology cluster, a key driver of the economy.

Meanwhile, the other 40% of the sectors has shed 20,300 jobs. Construction jobs continue to top out the list of industries shedding jobs (-8,800), followed by financial activities and the information sector, both posting losses of 3,600 jobs. Local education, PK-12, has dropped 2,200 workers while the federal government payrolls are down by 1,700. The decrease in federal employment is an anomaly. A number of temporary jobs were added in mid-2010 to complete the decennial census.

Fortunately, the movement of the state economy is different than movement of an airplane, where “stalling out” can have disastrous consequences. At the moment, a recession is unlikely; however, it is frustrating to endure a two-year recovery (jobs and output) that is moving forward at a “stalled pace.”

©Copyright 2011 by CBER.

Colorado Photonics Cluster Outperforms Job Growth for State

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Can you remember the names and order of all the planets?

Ball Aerospace announced that task just got tougher. In a presentation at the May 18th meeting of the Colorado Photonics Industry Association (CPIA), the local aerospace company discussed their role in the search to find habitable planets.

Pictures taken from a satellite built by Ball, as part of the Kepler project, have confirmed 15 new planets and their composition. That is just the beginning. About 1,000 additional potential planets have been discovered and are being evaluated. Expectations are that 80% will be classified as planets.

A second segment of the CPIA program included a presentation on the performance of the Colorado economy and a review of the Governor’s Bottom-Up Economic Development plan. That discussion focused on the importance of Advanced Technology in Colorado and the growth of the photonics cluster.

The AT cluster is a subset of the Information; Manufacturing; and Professional, Scientific and Technical Services sectors. About 20% of the state’s private sector workers are employed by companies in these three sectors, yet they account for about 35% of the state’s private sector Real GDP.

By comparison, tourism accounts for about 5% of Real GDP and retail is 6%. Both sectors are important to the state in different ways.

The tourism sector is an important part of the economy for the state’s 64 counties. Major attractions include Rocky Mountain National Park, Mesa Verde, mountain sports, and shopping at Cherry Creek mall.

Retail is important to local governments. They derive between 50 to 75% of their total revenue from retail sales taxes. As well, the state and special districts rely on retail sales taxes as their primary source of revenue.

The economic review concluded with a look at an analysis of data  that showed the growth of the photonics cluster between 2004 and 2010. Cluster growth for this six year period exceeded total state growth in all but one employment size category.

In short, the cluster benefitted from growth of renewable energy companies, but suffered from the decline of the state’s semiconductor industry. The analysis illustrates the importance of enabling technologies and how they play a key role in the success of companies in a wide array of industries.

©Copyright 2011 by CBER.

Do Colorado Companies Receive Their Fair Share of VC Funding?

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Colorado policy makers and business leaders take great pride in the state’s innovation and cowboy entrepreneurial spirit, but do Colorado’s innovators receive the funding or venture capital necessary to take their companies and ideas to the next level?

Most business leaders and policy makers answer the question with a resounding “No!” It is their belief that the local entrepreneurial community would be stronger if Colorado innovators had greater access to local capital.

On the other hand, the National Federation of Independent Business (NFIB) research resoundingly states that most businesses are adequately funded and that their greatest need is to have more customers. Admittedly, the NFIB customer base includes small businesses other than those who seek VC funding, so their results may not be totally representative of the VC community.

Some venture capitalists claim that Colorado lacks the critical mass of companies in any one cluster to warrant the attention that companies and policy makers feel they deserve. It is their belief that quality innovation will attract sufficient funding, no matter the location.

Price Waterhouse Coopers (PWC) Moneytree conducts research regarding the number of VC deals and investments for the U.S. and the states. Since 1995:
• Colorado companies have received 1.6 to 4.2% of total U.S. investment.
• Colorado companies have received 2.2 to 3.4% of total U.S. deals.
• The average size of an investment per deal is similar for Colorado and the U.S.
• Colorado has approximately 2.0% of total U.S. private sector firms.

Based on the number of companies in Colorado, the state typically receives more than its share of VC funding. The question is, “Do Colorado companies receive their fair share of VC funding?”.

For additional slides about Colorado’s VC funding  go to the PWC website.

©Copyright 2011 by CBER.

Concentration of State Construction Workers Declining

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Colorado Construction employment peaked in 2006 and has been on a downward path since. Not seasonally adjusted data topped 175,000 jobs in 2006. Today, there are 102,000 workers, comparable to mid-1995.

The large number of foreclosures and reduction in housing prices brought the construction of single family housing to a screeching halt. Approximately 9,500 permits will be pulled in 2011, up from the trough in 2009 (7,231). This is a far cry from the peak in 2004 (40,753).

Because it is difficult for geographically large states to develop distinctive competencies in construction, the concentration or workers, or location quotient (LQ), should be near 1.0. (A location quotient is the ratio. It is the percentage of state construction workers divided by the percentage of U.S. construction workers).

A LQ greater than 1.0 indicates a higher concentration of construction workers, much as the state has had for the past 20 years. On the other hand, a LQ less than 1.0 means Colorado has less of a concentration, much as occurred at the end of the 1980s because of overbuilding.

The state LQ for construction workers remained below 1.0 through mid-1991. It increased for the next 10 years (2001) to about 1.5. In early 2001, the LQ began declining and dropped off sharply for three years (2004). It leveled off for five years, then plummeted again in 2009.

How low will the LQ go? In theory it is reverting to 1.0. As the country recovers from the Great Recession, other sectors will expand at a faster, thus driving the LQ lower. It will rise again when Colorado experiences another strong expansionary phase.

©Copyright 2011 by CBER.

A Tale of Two Colorado Employment Forecasts

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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.

The Employment Recession Has Finally Ended

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When the NBER officially announced the end of the Great Recession, the general reaction was, “Oh really?” It was clear to most that while the technical recession was over, the employment recession was not.

More recently, it has been announced that the employment recession has ended, although unemployment remains high. In the case of Colorado, the rate has reached record levels and is higher than the U.S. Again, the general reaction has been, “Oh really?”

Yes, the country is in expansion mode again. (The unemployment rate is dismal, but it is a lagging indicator.)

There are clearly risks to the continued expansion; however, sufficient momentum appears to be in place to sustain growth in the near-term. Arguments supporting the expansion follow…

Mathematically, the recovery has to occur. Over the past three years Colorado had one of the worst performing economies in the country. At some point it has to improve and that time is now. The global economy is likely to expand by 4 to 5% this year and U.S. output growth will increase by at least 2.5%. Given that environment and Colorado’s assets, simple mathematics point to sustained job growth.

The country has experienced 7 quarters of heavily-stimulated Real GDP growth (Q1 2011 data has not been released, but it will be positive). Annualized real GDP growth for this period is in the range of 2.8%. Typically, solid job growth occurs when the economy expands at that rate.

As the recession drew to a close, companies increased output per hour at the expense of labor. The rate of productivity gains peaked in 2009 and 2010. The addition of labor will most likely be necessary for companies to experience further output gains.

As a result, the addition of jobs has begun. Nationally, March 2011 marks the sixth consecutive month of job gains. On average, increases for December 2010-March 2011 averaged 158,000 – not great, but a drastic improvement.

The Colorado growth pattern is a little more sporadic. Beginning in February 2010 job gains have occurred in 9 of the past 13 months and 4 of the past six months. While the path to prosperity is a little bumpy, job gains this year will push total state employment back to the 2001 peak.

Last year, healthcare led the state in job creation. At the end of the first quarter, it is projected to be up about 8,800 workers from a year ago.

The good news is that the sector has been joined by tourism, the extractive industries, and the Professional Business Services (PBS) sector for job creation. At the end of the first quarter, the three sectors will add 25,000 to 30,000 net jobs.
Colorado is coming off a solid ski season which, in part, has helped push tourism employment higher by about 8,200 jobs. Increased traffic at DIA points to solid growth in the industry. High gas prices may work to Colorado’s benefit, if it incents the state’s regional market to enjoy less expensive drive vacations to the state this summer.

The extractive industries comprise a small, but important sector because of the severance taxes  generated and jobs added in other industries. Year-over-year the sector is about 2,100 workers ahead of the same period last year. Sustained growth is likely to continue, particularly if the Niobrara oil patch proves to be a worthy producer.

The PBS sector has added about 8,200 workers over the past year. It is a mixed blessing that more than 40% of that increase is derived from Employment Services, i.e. temporary help. While these are typically not high paying jobs, gains in this subsector often point to expansion of other areas.

While the state may be at three years from recovering all the jobs lost in the Great Recession, we are finally on the path to that recovery. Sustainable growth, at some level, is on tap for Colorado.

©Copyright 2011 by CBER.

Risks to Recovery from Great Recession

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The recovery from the Great Recession has now been in place in Colorado for about a year! Spin-masters have labeled the expansion as moderate, manageable, and modest. More accurately, the return to positive territory is less than robust, it is well below average, it is fragile, but it is gaining momentum.

Putting the Thesaurus aside, it is great to again report that job growth is positive. Year-over-year Q1 2011 wage and salary employment is likely to be about 15,000 jobs greater than a year ago.

While there is reason for optimism, the following risks have the ability to derail the expansion, or at least reduce its strength.

• Nationally, Q1 manufacturing employment is about 185,000 net jobs ahead of the same period last year. While the nation added jobs, Colorado manufacturers had mixed results and the bottom line was continued jobs losses for the year. Colorado’s woes are likely to continue as manufacturers post another loss in Q1.

• The story in the construction sector has a similar ring to it. Other states have begun their recovery, yet Q1 Colorado construction employment will drop to levels last seen in the mid-1990s. Although the number of single-family permits is expected to increase this year, Q1 Colorado construction employment will be about 7,000 lower than last year.

• Between February, 2006 and February, 2008, the S&P/Case-Shiller Home Price Indices for Colorado housing prices declined by about 12%. In 2009, they regained about half their losses before leveling off. This has an impact on individual homeowners who may be under water or forced to sell for other reasons. As well, the coffers of local municipalities will see flat or reduced revenue streams because property values have not increased.

• Between 2000 and 2010 inflation rose by an annualized rate of 1.6% (Denver-Boulder-Greeley CPI). Looking more closely, this rate is deceptively low. For the period mentioned, the annualized rate of growth for the following categories has been:
o Fuel 5.6%
o Electricity 3.9%
o Medical 3.9%
o Recreation 3.0%
o Natural gas 1.9%
Housing, the dominant component of the headline indicator, came in at 1.3%. For some families, price increases at these levels are an inconvenience, while for others they are problematic.

• Job creation is critical! Net changes in employment are the difference between gross job gains and gross jobs losses. Average quarterly job gains have been fairly constant for the upturns as well as the downturns during the past two decades. On the other hand, fluctuations in average quarterly job losses has been more volatile. In simplistic terms, the changes in net employment have usually been determined by the levels of job losses, rather than the levels of job gains. While this sounds very intuitive, the creation of jobs is clearly much more difficult than it sounds!

• There are external factors such as the triple disaster in Japan; the disruptions in Egypt, Libya, Yemen, Ivory Coast, and Syria; and the wars in Afghanistan and Iraq. The former will clearly be distractions, but they will likely have minor short-term impacts on the U.S. economy.

• Debt!

• President Obama introduced a final possible deterrent to the economy when he announced that he is running for re-election. This is not intended to be a political statement for or against the President, rather an observation that election campaigns, particularly those that are bitterly fought, often put the economy in a holding pattern.

These are significant risks! At the same time, there is reason to be optimistic. The upside will be examined in an upcoming post.

©Copyright 2011 by CBER.

Gap between U.S. and Colorado Unemployment Widens

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The Colorado economy is a lot like the final two weeks of the 2010 Colorado Rockies baseball season – very ugly.

On a positive note, the word on the street is that both are going to be better in the near term (despite at opening day loss in extra innings).

On March 25, the Colorado Office of Labor Market Information (LMI) announced that the statewide seasonally adjusted unemployment rate had risen to 9.3% in February (the non-seasonally adjusted rate was 9.7%). By comparison, the national seasonally adjusted rate dropped further to 8.9%. Prior to January, the last time Colorado’s rate was higher than the U.S. was September 2005.

Seasonally adjusted unemployment rates for the state’s Metropolitan Statistical Areas (MSAs) are:
• Boulder  7.3%
• Fort Collins 7.9%
• Denver 9.4%
• Colorado Springs 10.1%
• Greeley 10.7%
• Grand Junction 11.0%
• Pueblo 11.1%.
These metros areas account for about 86% of the Colorado labor force. A majority of the state MSAs have unemployment at or above 9.4%.

There is more to the story…

Through February, year over year, seasonally adjusted data points to weak employment gains of 13,800 workers.

The areas of net job growth are:
• 11,400  Private education and health care
• 8,200  Tourism
• 8,200  Professional business services
• 2,200  Trade, transportation, and utilities
• 2,100  Oil, gas, and mineral extraction
• 800  Personal services
Employment in these 6 sectors is about 63% of all workers and 57.3% of total wages. The increase is about 32,900 workers.

The areas with continued declines are:
• -8,900 Construction
• -3,900 Financial Activities
• -3,200 Information
• -2,600 Government
• -500 Manufacturing
These 5 sectors have shown losses of 19,100.

It is good news that there is an increase in net jobs; however, there are 3 areas of concern:
• The weak level of net job growth is being driven by a reduction in job losses rather than a significant increase in job gains.
• Many of the jobs that are being added are not primary jobs.
• Many of the jobs being added pay lower wages and have less on an impact on the economy.

So, are we headed for continued improvement and another Roctober or lackluster economic growth and another October watching other teams play in the World Series? A few months from now we will have a much better idea where the economy and Rockies are headed.

©Copyright 2011 by CBER.

Bottom Up Planning Process Nears Implementation Phase

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The 14th, and final, stop on Governor Hickenlooper’s Bottom Up Eco Devo Planning tour landed at the Arvada Center earlier today. About 200 citizens and business leaders from the metro counties convened to provide input. The bottom up information gathering process is scheduled to be wrapped up at the end of April.

Attendees were grouped by their county of residence and asked to discuss a common set of questions and issues. The following paragraphs provide some of the topics discussed by fellow Broomfielders.

Topic: What can government do better to support business?
• Make it easier for businesses to find out about local assistance.
• Become more aware of how to support the unique needs of specific industries and clusters such as photonics, aerospace, nanotechnology, and the biosciences. To this point, a brief discussion focused on how elected officials can become more “military-friendly”, which includes support of the defense, homeland security, aerospace industries and their supply chain.
• Continue to further strengthen relationships between education, government, economic developers, workforce training, and the private sector.
• Improvement of the 36 corridor, including completion of FasTracks.
• Establish a visionary group that provides a long-term economic vision for Colorado – that covers all aspects of economic development from research to recruitment to retention. During the 1980s and 1990s, the Colorado Advanced Technology Institute (CATI), helped develop many of the clusters and industries that are critical to the state’s present economy.

Topic: What are areas that are important to the success of Broomfield?
• Maintain a designated level of primary jobs (jobs that create other jobs).
• Support innovation.
• Strength of neighboring communities (higher education, research facilities, distribution services) and realization that it is not necessary to duplicate their competencies.

Topic: What are Broomfield success stories?
• The foresight of city and county leaders that provided Broomfield with a diverse tax base derived from a strong mix of retail and industry.
• Development of the 1st Bank Center.
• 36 Commuting Solutions has developed partnerships between local municipalities to secure funds for improvements of the 36 corridor.

Colorado is blessed with an intelligent and creative populaton who have an abundance of enthusiasm and good ideas. It will be easy to organize and prioritize their thoughts and opinions. The challenge will come in finding funds to implement the plan.

A more complete summary of this event and previous meetings will be available on the Bottom Up website.

©Copyright 2011 by CBER.

Colorado Legislative Council – Outlook for the State Improving

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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.