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.