Category: Colorado Economy

Colorado Job Growth – 2014 and 2015

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On March 20th, the Bureau of Labor Statistics will release its benchmark revisions for 2014 Colorado employment. Most likely the number of jobs added will be at least 73,000. The revisions will provide insight about how the following issues will be addressed as the state moves forward in 2015.

Unemployment – The state’s unemployment rate is well below that of the U.S. Will Colorado companies begin to encounter job shortages in key occupations? Will companies face pressure to raise wages because of these shortages? Will companies be able to hire workers even if they raise wages?

Housing – How much will demand for new homes drive growth of the construction industry? How will the rapid increase in prices shape the demand for the type of housing that will be built (single-family or multi-family)? Will the price of existing housing make it too expensive for outsiders to move to Colorado, i.e., will it stymie growth?

housing construction - job growth

Price of oil – 2014 was a record year for oil production in Colorado. There will likely be a significant decline in 2015. How much will it affect the overall economy? How will this impact the unemployment rate and job growth in Weld, Garfield, La Plata and smaller counties that produce oil and gas? Will the layoffs allow the oil and gas companies to get rid of “dead wood” and become less “top heavy”? Is there new technology that will allow the oil and gas companies to operate more efficiently and in a more environmentally friendly manner? Will hiring at Vestas help offset the decline in the extractive industries and provide a workplace for some of the displaced oil and workers?

– The U.S. has enjoyed strong job growth over the past couple of years. How will Colorado companies be able to participate in that growth? To what extent will the rural counties support Colorado job growth in 2015?

Stay tuned for the release of the data and another exciting year ahead for the Colorado economy.

2014 Unemployment Rate – Challenges and Positives for 2015

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On March 4, the Bureau of Labor Statistics released its annual unemployment data for Colorado. The 2014 unemployment rate for Colorado was 5.0%, down from 6.8% in 2013. The average number of unemployed decreased from 189,023 in 2013 to 141,387 in 2014.

With that as a background, some of the challenges and positives facing the economy are listed below.

Employment in Colorado has increased at a modest and manageable rate for the last two years. A similar level of growth is expected in 2015, but there will be some challenges.
• The decline in the price of oil has begun to hit Colorado producers. The breakeven point for the Niobrara is in the $65 to $70 range. Several companies have announced significant layoffs.
• In addition to the drop in the price of oil, demand for Colorado coal declined in 2014. Coal is a major driver of several rural economies throughout the state. With the decline in demand, many communities are fine tuning their economic development strategies to diversify their economies.
• Colorado’s rate of inflation is more than a point higher than the rate for the U.S. (The Denver-Boulder-Greeley index is used as a proxy for the state). Last year it was 1.6% for the U.S., while it was 2.8% for Colorado. The rapidly appreciating prices of housing in Denver and many parts of the state are largely responsible for the gap in inflation between the state and the nation.
• Rising home prices are a two-edged sword. They benefit the home owners but may be detrimental to prospective buyers. In parts of the Front Range, there is solid demand and low inventories for certain types of housing, particularly at the lower end. Affordable and attainable housing are in high demand.

On the other hand the state has many positives:
• Nationally, jobs are being added at rate that is accelerating slightly. That bodes well for Colorado.
• The decline in oil and gas prices has increased disposable income slightly, about $50 for 2014 and $500 to $700 for 2015.
• Rising home prices will be beneficial to Colorado. Homeowners are more confident if they feel the value of their home is increasing. As a result they may spend more. Rising property values directly benefit the coffers of local governments and school districts.
• After a slowdown in 2014, Wall Street is enjoying a bull market. This in turn creates wealth and increases greater consumer and business confidence.
• Unemployment is expected to remain below 5.0% throughout 2015. As a result wage pressures will become a bigger issue in more occupations and industries. This is great for workers, particularly if their increases exceed Colorado’s rate of inflation (2.8% in 2014). Wage increases that exceed the rate of inflation will serve as a form of stimulus to the economy because workers will have greater confidence and more to spend. In turn, education and state and local government will be able to more fully fund programs that have been underfunded in the past.
• Because the decline in the price of oil is a global issue, oil and gas employees may not be able to move to other states or countries to find work. With the Colorado unemployment in the range of 4.0% some of these workers may be able to stay in-state and work in construction, manufacturing or other positions.
• Colorado has experienced another first-rate ski season, with an added benefit of hosting the 2015 FIS Alpine World Ski Championships in Vail. The event showcased the state to 700 athletes from more than 70 nations.
• The spring snow storms significantly increased snowpack levels in many parts of the state; however, additional snow is needed. Water in critical for all aspects of Colorado’s economy. While the snow is often viewed as an inconvenience to those along the Front Range, it is essential to have good snow pack in our mountains and counties where agriculture dominates the local economy.
• The sectors that have driven the economy over the past two years are construction; healthcare; accommodations and food services; retail trade; and professional, scientific, and technical services (PST). These sectors are expected to account for about 60% of the job growth in the state in 2015. There will admittedly be challenges in the extractive industries; however, they will have a minor impact on the growth of the state’s top five sectors for job growth.

As Colorado addresses these challenges and positives, job growth in 2015 is expected to be at or slightly less than the rate for 2014.

General Fund Projections Provide Positive Outlook for Colorado

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The projections of the Colorado Legislative Council and the Governor’s Office of State Planning and Budgeting show continued solid economic growth for the next three years, 2015 through 2017. From the perspective of the state government, the most important part of those projections is the budget for the General Fund.

General Fund Revenue for FYE June 2015 will increase to $9.6 billion, an increase of about 7.0% over FYE 2014. By 2017 the General Fund is expected to exceed $11.1 billion.

Sales Tax Revenue accounts for about one-fourth of the Gross General Fund. The Sales Tax Revenue for FYE 2015 is projected to be approximately $2.6 billion.

Net Individual Income Tax accounts for about two-thirds of the Gross General Fund Revenue. The Individual Income Tax Revenue for FYE 2015 is projected to be about $6.1 billion.

It is important to put these projections in perspective because times weren’t always as good as they are today. In 2008 the Gross General Fund was $7.7 billion. It fell to $6.5 billion in 2010 and has climbed upwards since.

The following economic projections will have an impact on the economy and revenue collections by the state through FYE 2017:
• Sustained job growth.
• Solid consumer confidence.
• Continued net migration.
• Strong equity markets, even though they may be volatile.
• If sales tax projections are correct, FYE 2014 to FYE 2017 would be the best four-year period for tax growth since FYE 1997 to FYE 2000.
• Lower gas prices may increase retail sales which could increase tax revenues in the short-run.
• Improved labor markets will create upward pressure on wages. This will potentially increase individual income taxes, but possibly decrease corporate income taxes.
• There is an expected TABOR surplus that will reduce individual income taxes beginning in FYE 2016.
• Corporate profits may be lower because of increased labor and capital costs and a reduction in tax incentives.

It will be interesting to look back in 2018 and see which of these economic projections have transpired.

general fund

Colorado Population – 5.4 Million in 2015

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The Colorado population increases and decreases are a result of the natural rate of change (births minus deaths) and the change in net migration (people moving into the state minus people moving out of the state).

Over the past two decades the natural change (red bars) varied from a low of 29,168 in 1995 to a peak of 41,124 in 2007.

Changes resulting from net migration (blue bars) are closely tied to the strength of the economy. For example, there were five years, from 1986 to 1990, when net migration was negative. More people moved out of state than moved into the state to escape a regional recession. During the past two recessions, net migration declined, but did not turn negative because it was difficult for people to move. Net migration remained positive.

The Colorado population increased by about 86,000 in 2014 and will increase by about 89,000 in 2015.

Net migration will increase by 56,000 in 2015, the highest level of change since 2001. In 2015 the state’s population will increase by 1.7% to 5.4 million.

change in popuoation

Lower Gasoline Prices Save $45 in 2014

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In mid-April 2012 the price for a gallon of gasoline was just under $4.00. It slowly declined through mid 2014 to about $3.80 in the U.S. and Colorado. At that point it went into a freefall and closed the year at about $2.40 per gallon.

The Savings
• For 2014 the cost to purchase 15 gallons of gasoline per week in Colorado was $2,659 compared to $2,704 in 2013. In other words, the “savings” was $45 for the year.
• For 2014 the cost to purchase 15 gallons of gasoline per week in the U.S. was $2,696 compared to $2,788 in 2013. The savings was $92 for the year.
• For 2014, the cost to purchase 15 gallons of gasoline per week in Colorado was $37 less than the U.S.

The Good News – Lower gasoline prices may increase discretionary income for consumers. It may decrease the cost of other goods, if businesses pass along their savings for lower fuel costs. In Colorado, the thought of greater discretionary income may be nothing more than a dream for many as inflation, particularly for housing costs, has risen.

The Not So Good News – Typically, the impact of lower oil and gasoline prices on the state is negative. In other words, consumers will benefit; however, state coffers will not be as full because tax collections will be lower.

There is no free lunch!

gasoline prices

Colorado Economy Remains on Solid Footing

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The most recent data release by the Bureau of Labor Statistics showed the Colorado economy remains on solid footing.

The unemployment rate dropped from 6.2% a year ago to 4.0% this year. That sharp of a drop produces significant shock within the system, more so than when the change is more gradual.

With that sharp of decline, it becomes difficult to find workers in some occupations. That difficulty will be accentuated by a sense of urgency to find workers. As well, more industries will face upward wage pressures. That is good for workers, but will cut into the bottom line of companies.

The recent jobs data is another indicator the Colorado economy is continuing to grow at a steady pace. For all practical purposes, it is meaningless to talk about the December numbers. When BLS makes their annual revisions in March, it is likely the number of Colorado jobs will be revised upwards.

The U.S. economy is solid which bodes well for Colorado. New car sales have returned to pre-recession levels, real GDP will be stronger this year both globally and for the U.S., the U.S. should add more than 2.6 million jobs this year (and Colorado should be at least 2.7% of that total), government spending will be stronger, and purchasing managers in manufacturing and service companies are optimistic.

In Colorado, BLS data will show that the number of establishments increased at a greater rate than in 2013. If there are more businesses there are more potential job opportunities for workers.

In 2015 about 60% of job growth will be in construction; health care; accommodations and food services; retail trade; and professional and technical services.

Admittedly, the price of oil will have an effect on the rate of job growth in 2015; however, at a statewide level, most of the top sectors will show steady growth unless the price of oil stays low for an extended period.

The steady growth that is currently occurring in the Colorado economy is much easier to manage and deal with than the rapid growth the state experienced during the 1990s.

Colorado Establishments by Category Size

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At last count, there were 174,020 private sector Colorado establishments. It will come as a surprise to some that 99.95% of the Colorado establishments have fewer than 1,000 employees.

In fact there are 83 establishments with 1,000 or more employees and there are 161 with 500 to 999 employees. About 88.6% of Colorado’s establishments have fewer than 20 workers.

BLS is very specific about what an “establishments” is. This is illustrated by the following definition from the Glossary on their website.

The physical location of a certain economic activity—for example, a factory, mine, store, or office. A single establishment generally produces a single good or provides a single service. An enterprise (a private firm, government, or nonprofit organization) can consist of a single establishment or multiple establishments. All establishments in an enterprise may be classified in one industry (e.g., a chain), or they may be classified in different industries (e.g., a conglomerate).

Number of Colorado Establishments by Size Category
Category Number Percentage Cumulative Percentage
Fewer than 5 employees per establishment 108,973 62.62% 62.62%
5 to 9 employees per establishment 26,697 15.34% 77.96%
10 to 19 employees per establishment 18,537 10.65% 88.61%
20 to 49 employees per establishment 12,932 7.43% 96.05%
50 to 99 employees per establishment 4,070 2.34% 98.38%
100 to 249 employees per establishment 2,074 1.19% 99.58%
250 to 499 employees per establishment 493 0.28% 99.86%
500 to 999 employees per establishment 161 0.09% 99.95%
1000 or more employees per establishment 83 0.05% 100.00%
Total 174 020 100.00%
Source: BLS

Mining and Real Estate – Drivers of the Colorado Economy

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Thank goodness for the  mining and real estate industries! From an output perspective these industries are the primary drivers of the Colorado economy.

In 2013, Colorado’s nominal GDP was $294.4 billion (most current data available). The state’s economy expanded by $157.1 billion between 1997 and 2013 (1997 is the first year that data was available). Between 2009 and 2013 the GDP expanded by $46.3 billion.

The Great Recession had a major impact on the way the economy expanded. This is evident when comparing the contribution to output for the periods 1997 to 2013 and 2009 to 2013.

Between 1997 and 2013 the contribution to GDP was broken down as follows:
• Goods Producing 20.5%
• Service Producing 68.6%
• Private sector (Goods + Services) 89.0%
• Government 11.0%

Between 1997 and 2013 the annualized rate of growth for the GDP follows:
• Total 4.9%
• Private 5.0%
• Government 4.1%

Between 2009 and 2013 the contribution to GDP was broken down as follows:
• Goods Producing 28.0%
• Service Producing 65.5%
• Private sector (Goods + Service) 93.6%
• Government 6.4%

Between 2009 and 2013 the annualized rate of growth for the GDP follows:
• Total 4.4%
• Private 4.7%
• Government 2.2%

Thank goodness for the Goods Producing Sectors (Agriculture, Mining, Construction, and Manufacturing)!

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
All industry total $294,443 $157,072 $46,266
Private industries $258,217 $139,860 89.0% $43,287 93.6%
Goods Producing $57,447 $32,144 20.5% $12,964 28.0%
Service Producing $200,771 $107,718 68.6% $30,325 65.5%
Government $36,226 $17,212 11.0% $2,979 6.4%

The following two tables provide more detail by industry.

The following table shows more detail by industry sector. It is sorted in descending order by the column 2013 minus 1997.

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
Real estate and rental and leasing $40,194 $21,355 13.6% $6,895 14.9%
Mining $19,848 $17,964 11.4% $8,518 18.4%
Government $36,226 $17,212 11.0% $2,979 6.4%
Professional, scientific, and technical services $26,355 $16,084 10.2% $4,233 9.1%
Information $21,578 $12,019 7.7% $1,407 3.0%
Health care and social assistance $17,438 $10,503 6.7% $2,262 4.9%
Wholesale trade $15,915 $7,818 5.0% $2,606 5.6%
Retail trade $16,105 $6,926 4.4% $1,965 4.2%
Manufacturing $21,600 $6,657 4.2% $2,171 4.7%
Finance and insurance $14,480 $6,067 3.9% $2,436 5.3%
Accommodation and food services $9,409 $5,255 3.3% $1,769 3.8%
Management of companies and enterprises $6,207 $5,106 3.3% $1,550 3.4%
Construction $11,820 $4,861 3.1% $208 0.4%
Administrative and waste management $8,653 $4,308 2.7% $1,090 2.4%
Transportation and warehousing $7,984 $4,094 2.6% $1,598 3.5%
Other services $6,549 $2,784 1.8% $605 1.3%
Agriculture, forestry, fishing, and hunting $4,179 $2,662 1.7% $2,067 4.5%
Arts, entertainment, and recreation $3,848 $2,029 1.3% $890 1.9%
Utilities $3,798 $1,782 1.1% $646 1.4%
Educational services $2,258 $1,588 1.0% $373 0.8%

The following table shows more detail by industry sector. It is sorted in descending order by the column 2013 minus 2009.

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
Mining $19,848 $17,964 11.4% $8,518 18.4%
Real estate and rental and leasing $40,194 $21,355 13.6% $6,895 14.9%
Professional, scientific, and technical services $26,355 $16,084 10.2% $4,233 9.1%
Government $36,226 $17,212 11.0% $2,979 6.4%
Wholesale trade $15,915 $7,818 5.0% $2,606 5.6%
Finance and insurance $14,480 $6,067 3.9% $2,436 5.3%
Health care and social assistance $17,438 $10,503 6.7% $2,262 4.9%
Manufacturing $21,600 $6,657 4.2% $2,171 4.7%
Agriculture, forestry, fishing, and hunting $4,179 $2,662 1.7% $2,067 4.5%
Retail trade $16,105 $6,926 4.4% $1,965 4.2%
Accommodation and food services $9,409 $5,255 3.3% $1,769 3.8%
Transportation and warehousing $7,984 $4,094 2.6% $1,598 3.5%
Management of companies and enterprises $6,207 $5,106 3.3% $1,550 3.4%
Information $21,578 $12,019 7.7% $1,407 3.0%
Administrative and waste management $8,653 $4,308 2.7% $1,090 2.4%
Arts, entertainment, and recreation $3,848 $2,029 1.3% $890 1.9%
Utilities $3,798 $1,782 1.1% $646 1.4%
Other services $6,549 $2,784 1.8% $605 1.3%
Educational services $2,258 $1,588 1.0% $373 0.8%
Construction $11,820 $4,861 3.1% $208 0.4%

 

Colorado Jobs and Economy Remain Strong

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On December 20th the BLS will provide their final 2014 Colorado jobs report.

Given the strength of the U.S. job growth reported earlier this month (321,000 jobs added), it is reasonable to think there will be solid job growth for November. While the economy has had its ups and downs, job growth remains solid, and is trending upwards.

The upcoming press release is somewhat irrelevant because the BLS will release the 2014 benchmark revisions in early March of 2015. That data is expected to show that the number of Colorado jobs increased by about 73,000, or 3.1%, during 2014.

The BLS began producing state employment data in 1939. The Job growth of 73,000 jobs in 2014 will be the tenth best year in terms of absolute job growth (the number of jobs added). On the other hand, 2014 will be the 38th best year in terms of relative job growth (percentage of job growth).

This year marks the only time that Colorado jobs have increased at an accelerating rate for four consecutive years. Between 2011 and 2014, Colorado has added about 231,000 workers (36,300 jobs in 2011; 54,400 jobs in 2012; 68,100 jobs in 2013; and 73,000 jobs in 2014.)

Looking ahead to 2015:
• The price of oil has declined precipitously because supply exceeds demand. As a result the price for a gallon of gasoline has dropped well below $3.00 per gallon. To date, the short-term impact of lower gas prices has been minimal. If prices remain low, Colorado’s frequent fuelers will realize savings of about $500 to $600 next in 2015. Because wage growth has been weak over the past four years, most people will not use the savings for discretionary purposes. Rather they will pay for rent, food, medical costs, and other necessary expenses that have risen at a rate faster than their wages.
• In the short-term (first half of 2015) lower oil prices may not have a significant impact on production and the number of workers in Colorado’s extractive industries. If prices are suppressed for an extended period, then production will fall. Initially, contractors and engineers will be laid off and production workers will be furloughed. Eventually smaller companies and suppliers will be impacted. The extractive industries have a comparatively small direct workforce; however, they indirectly touch many industries. They have a much bigger role in the Colorado economy than most people realize.
• A slowdown in the economies of China, Russia, and parts of the European Union may impact Colorado companies that export products and services globally.
• Wage growth has been extremely weak, particularly given the decline in the rate of unemployment this year. Although the unemployment rate is below 4.5% (the natural rate of unemployment), upward wage pressure has been felt in only a few industries, such as construction and finance.
• Retail sales have remained solid because of increased employment and in-migration. Stronger wage growth is needed to support significant growth in retail sales.
• The downward trend in the unemployment rate is a mixed blessing. It is great that more people have jobs, but labor shortages will occur  in more industries during 2015 as the supply of trained workers is reduced.
• Health care costs will continue to be an issue in 2015. Participants in the Connect for Health Colorado program will not see minimal increases in their 2015 premiums. Unfortunately, the subsidies were reduced, which will cause costs for insurance to increase significantly for many families.
• Colorado’s housing prices continue to rise, which is good news for existing home owners. It is not such good news for renters and people moving to the state.

Despite these headwinds, there are plenty of reasons to be optimistic about the growth in the number of Colorado jobs and the overall economy in 2015.

Lower Gasoline Prices Have Minimal Impact

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Since the second quarter of 2012, the price of gasoline has slowly declined in the U.S. and Colorado.

At this point, the impact in total gasoline prices for the year is primarily psychological even though prices have dropped below $3.00 per gallon in some locations. The difference in total prices paid for 2014 compared to last year are negligible.

The Good News – At some point lower gas prices may increase discretionary income for consumers. At the moment that is not likely because inflation has driven other costs higher, especially housing costs.

The Not So Good News – Typically, the impact of lower oil and gasoline prices on the state is negative. In other words, consumers will benefit; however, state coffers will not be as full because tax collections will be lower.
gasoline prices