Category: Colorado Economy

Growth in Colorado Exports Bodes Well for Recovery

horvath

Recent export numbers provided a glimmer of hope that both the global and Colorado economies are slowly improving. As reported by Rita Wold in the November 12th issue of the Denver Post , Colorado exports through the first 8 months of the 2010 are about 10% higher than for the same period last year. This growth was driven by gains in the top agriculture category and each of the top four manufacturing groups.

Colorado exports, as calculated by WISER , peaked at almost $8.0 billion in 2006, followed by a series of declines to $5.9 billion last year. Total exports in the neighborhood of $6.5 billion are on tap for 2010.

The top agricultural export is, “Meat of Bovine Animal, Fresh or Chilled;” as beef sales are Colorado’s top meat export. In 2005, meat exports bottomed out at about $152 million as fears of Mad Cow disease caused many of the state’s trading partners to block sales of beef imports.. As concerns about the disease subsided, the markets for Colorado beef and other meats increased over the next several years to $400 million in 2008. Demand has declined with the global recession and Colorado meat exports should exceed $330 million this year.

On the manufacturing side of the equation, the top export category is electronic integrated circuits and microassembly parts. In 2006, exports in this category totaled $1.3 billion, and accounted for 16% of the state total. In 2010, this category will account for about 6% of total exports, or $430 million. The loss of the Intel plant in Colorado Springs several years ago, along with the restructuring of the computer storage industry brought about the precipitous decline in Colorado manufacturing exports and employment.

The increase in Colorado manufacturing exports bodes well for the recovery of the Colorado economy, however, it is not likely to drive a strong short-term increase in employment. Over the past decade, manufacturers have increased productivity and output at the expense of a larger work force.

The Colorado Office of Economic Development and International Trade  and the World Trade Center  provide a variety of programs and assistance to Colorado exporters. Many of these services are particularly valuable to first-time exporters or to business exporting to countries for the first time.

 

 

©Copyright 2011 by CBER.

Job Losses Expected in 2011 – State Demography Office

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The 2010 Annual State Demography Meeting kicked off on a somber note, when staff economist David Keyser;  announced that the state’s recovery from the Great Recession will be painfully slow.

Some of the key points from Keyser’s review of the past year (2010) were:
• Job gains occurred in health care, government, and education.
• Ongoing losses in manufacturing continue to hinder the recovery because they have a high multiplier effect.
• Low wage jobs were hit harder.
• Access to credit provided a challenge for many companies.
• Small businesses saw significant setbacks.
• Rural counties that relied on oil and gas or tourism (such as the Western Slope) suffered greater losses, while agriculture-based economies were more stable.
• The loss of basic jobs, such as manufacturing, will have a long-term effect on the state because these jobs are likely to be relocated elsewhere.
• On the other hand, the loss of non-basic jobs, such as retail, food and beverage, or personal services will return in the same location.
• Colorado will remain a popular place to live and work and net migration will remain positive, but slightly below previous years.

Looking ahead, key points from Keyser’s presentation for 2011 were:
• Non-farm wage and salary employment will decline slightly and a best case scenario is that it will be flat. Wage and salary job losses should not exceed 22,000 (1%).
• Agriculture and small businesses are likely to post a slight increase, offsetting declines in wage and salary employment.
• Construction won’t come back in the immediate future.
• Health care will continue to add jobs.
• Colorado will continue to be closely tied to the US economy.
• Many of the effects of the 2007 recession could be permanent.

Keyser’s forecast for 2011 is slightly lower than what cber.co projected in late October, but the basic analysis of the current state of the economy is similar.

©Copyright 2011 by CBER.

Colorado to add 15,000 Jobs in 2011

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In late October, the Bureau of Labor Statistics released its first estimate of September employment data for Colorado. Based on that report, the state is on track to lose 35,000 jobs in 2010. (Preliminary 2010 data will be released in March 2011.)

Recently, many of the nation’s top economists have revised their 2011 Real GDP forecasts downward, in the range of 1.9% to 2.6%. Output growth of 2.4% points to a miniscule job increase of 0.7%, or 15,000 jobs, for Colorado next year.

This Colorado economic forecast  was shared with state business and government leaders this past week. A summary of the responses from these individuals follows:

  • The country should be concerned about the effect the Lost Decade will have on its competitiveness.
  • The recent announcement that Q3 Real GDP was 2.0% is better than expected; however, if output growth continues at this level next year, Colorado cannot expect meaningful job growth.
  • The lack of overall growth in the economy is reflected in the real estate market.
  • Colorado typically lags the nation in entering and exiting economic downturns. Colorado’s exit from the Great Recession seems to be slower than that of the nation – despite lower unemployment.
  • For some time, I’ve been concerned about unrealistic expectations for growth in consumer demand, given the deleveraging overhang and unemployment.
  • Colorado’s major wealth creation industry – mineral extraction – continues to be hobbled by policy, yet Wyoming is projecting a healthy recovery in the months ahead- thanks to their policies regarding extractive minerals.
  • Southwest Colorado is no better than the Front Range.
  • The word that best describes the Western Slope economy is “lagging.” We’re used to growing faster than the state; recently we were losing jobs faster, although those declines have slowed.
  • There is a reasonable chance that Colorado will experience back-to-back-to-back job losses.
  • We are seeing more inquiries, which hopefully will bode well for our local economy.
  • We are seeing more inquiries, but they are not translating into sales – yet.
  • Efforts are being made to manipulate the housing and equity markets to create the illusion that the economy is better than it really is. The hope is that if consumers see their net worth rise, then they will start spending again. This makeshift effort does not eliminate the fundamental problems.

While these comments are not intended to be a representative sample of all Coloradans, they support the belief that the prospects for a solid recovery are not in the immediate future.

 

©Copyright 2011 by CBER.

Real GDP and Colorado Employment

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Over time, there has been a strong correlation between the values of Real Gross Domestic Product and Colorado employment. Logically, this makes sense because both are growth variables that follow similar paths.

Employment data for Colorado was first recorded in 1939. In 4 of the decades since, (50s, 60s, 70s, 90s) there has been a strong correlation between changes in the U.S. economy and Colorado employment. In three of the decades, the tie between the two variables was weaker. This can be explained by a variety of economic disruptions:
• 1940s – World War II and the post-war effect caused the two variables to be out of sync.
• 1980s – Colorado experienced regional issues including an oil and gas boom and bust, savings and loan crisis, overbuilt housing market, and net out-migration for 5 years.
• 2000s – The primary and secondary effects of two recessions hit Colorado harder than other regions of the country.

Since 1939, Colorado has experienced net job losses 8 times. On 5 of these 8 occasions, the U.S. recorded positive Real GDP growth.

Colorado experienced job losses 4 times during the past 8 years:
2002    42,700 jobs lost.
Real GDP = 1.8%.
2003    31,400 jobs lost.
Real GDP = 2.5%.
2009    106,300 jobs lost.
Real GDP = -2.6%
2010    35,000 jobs lost.
Real GDP = 2.6%.
There was positive expansion in output in 3 of the 4 years that job losses occurred.

Recent forecast updates suggest that the U.S. will experience below potential output growth through 2011. This raises the question, “Has the fragile state economy recovered to the point where it can add jobs in such a volatile economic environment?”

 

©Copyright 2011 by CBER.

Transportation Industry Hit Hard

horvath

Previous blog discussions have focused on the relationship between the economy and two important components of Colorado’s transportation infrastructure, DIA  and RTD . The state’s transportation system also includes bridges, roadways, smaller airports, and mass transit systems – all falling under the oversight of the Colorado Department of Transportation (CDOT) .

In addition to infrastructure, Colorado has a very vibrant transportation industry, i.e. the companies that transport people and goods. Approximately 58,000 people, or 2.8% of the state’s workforce, are employed at 3,800 companies. They receive $2.6 billion in total wages, or 2.5% of the state’s total. Average annual wages are in the neighborhood of $41,000, slightly less than the overall state average. Some of the major types of companies include:

• 2,100 Truck transport companies
• 670 Transportation support companies
• 340 Couriers
• 250 Warehouse companies
• 200 Ground transport companies
• 140 Air transportation companies

About 60% of the transportation workforce is located in Adams and Denver counties, in close proximity to DIA, Front Range Airport, and the state’s major arteries  (I-25, I-70, Colorado I-76, and Colorado US 85).

Over the past two years about 10,000 jobs have been trimmed from the transportation workforce, a disproportionately high percentage of workers. Time will tell whether or not all of these positions will be recovered and the impact these job losses have on Colorado’s competitiveness.

 

 

©Copyright 2011 by CBER.

NABE Downgrade of Real GDP Bodes Ill for Colorado

horvath

The National Association of Business Economists (NABE) released its fall consensus forecast in early October. NABE revised its outlook for output from 3.2% (in May) to 2.6% based on lower than anticipated economic activity during the summer months.

In addition, NABE indicated that modest growth in consumer spending is on tap through 2011. Consumers will remain cautious as a result of continued high unemployment and weak gains in employment. As well, minimal growth is expected in household net worth, i.e. small gains are expected in equity portfolios and home prices

Finally, NABE opined that the downward revision in the forecast reflects “a greater appreciation of the importance of stimulus policies in countering forces holding down the economy’s performance.”

While it is not surprising that NABE lowered its expectations for expansion of the economy, the amount of the decrease is reason for concern. In simplistic terms, the May forecast suggested that the U.S. would see above potential growth this year while the October forecast now says that growth will be well below potential.

Were the NABE panelists overly anxious to see a recovery or did the positive impact of the stimulus package on Q1 Real GDP cause them to be overly optimistic in their May outlook? Clearly panelists missed indicators of the summer slowdown in their May forecast; are there other factors, favorable or unfavorable, that panelists may have missed in their October update?

The revisions in the NABE forecast illustrate the challenges that economists and business researchers face in evaluating and forecasting the performance of the economy. Many of the econometric models that have worked well during periods of growth have proven to have limitations caused by the volatility of the economy over the past decade. This is not intended as criticism, but rather an illustration of the challenge our public and private sector leaders face when they are forced to make decisions without perfect information.

While Colorado is a great place to conduct business, the underlying message from the NABE forecast bodes ill for Coloradans. Lackluster growth at the national level translates into an extended recovery for the Colorado economy, i.e. there will be limited job growth on the horizon.

©Copyright 2011 by CBER.

Increased DIA Traffic Bodes Well for Economy

horvath

Amidst all of the bad economic news, there is a ray of hope from the transportation sector. Year-to-date passenger traffic at DIA, through July 2010, is stronger than last year. About 30.2 million passengers have passed through airport gates this year, or about 779,710 more than in 2009. This represents a healthy increase of 2.6%. This is a good sign because it means more people from around the world are traveling for business and personal reasons.

Typically, the DIA’s peak load occurs in July. The total number of passengers for July 2010 was 5,060,508. Despite the year-to-date increase, the monthly total for July is slightly off the pace of 5,109,342 for 2009.

The 2010 YTD passenger total is slightly below the same period for 2008. If this level of activity continues, approximately 51 million passengers will travel through DIA in 2010.

©Copyright 2011 by CBER.

Net Job Losses Occur Beyond the Official “End” of Recession

horvath

On September 20, 2010, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) issued a press release that said, “The committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.”

Did you breathe a sigh of relief when you first heard that news?

Because the criteria for determining a recession includes a variety of factors, it is possible for a downturn to continue to take a toll beyond the trough. That was certainly the case with Colorado employment in the past two recessions.

Seasonally adjusted employment data for the 2007 recession show that Colorado experienced net job losses of 113,800 workers, from peak to trough. Between July 2009 and August 2010, job losses have occurred in 10 of 13 months. Post-trough job losses have totaled 41,800 workers to-date and may go higher.

By comparison, the 2001 recession lasted from March to November. During that period, net job losses were 42,500 employees. Post-trough declines occurred in 15 of 20 months and totaled 60,600 workers.

In summary, there was a drop of over 100,000 jobs associated with the 2001 recession; to-date over 155,000 employees have been shed as a result of the 2007 recession. That is a significant decrease for a state that employs 2.2 million workers.

Looking forward, we can only hope that the expansion cited by the NBER is strong enough to include employment growth for Colorado in 2011.

©Copyright 2011 by CBER.

KC Fed Cites Growth in 10th District High-Tech

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The Denver Business Journal recently reported that the Kansas City Federal Reserve Beige Book stated that during late July and August, consumer spending in the 10th District “increased slightly from the previous period, and high-tech and transportation firms reported moderate growth.”

Colorado’s Office of Labor Market Information  (LMI) group has produced a definition of Advanced Technology (AT) and a data series based on this definition. That definition suggests that AT includes much of the Manufacturing; Information; and Professional, Scientific, and Technical Services sectors (PST).

Based on their definition of AT, the cluster does not appear to be performing as well in Colorado as their counterparts in other parts of the 10th district.

©Copyright 2011 by CBER.