Tag: Colorado economy

Leisure and Hospitality Leads the Recovery

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The Leisure and Hospitality (L&H) Sector has played a critical role in the recovery of the national and state economies. It is important because of the number of jobs added and because it is part of the economy in every county in the state.

Nationally, seasonally adjusted employment peaked in December 2008 at 13,560,000 workers. The number of workers declined with the Great Recession and in March 2012 employment surpassed that previous peak, reaching 13,587,000. It took 50 months for the sector to go from peak-to-trough-to-peak.

There was a similar pattern for Colorado. L&H employment peaked in May 2009 at 276,000. L&H Employment declined with the recession and in January 2012 it surpassed the prior peak at 277,800. It took 44 months for the state sector to recover.

While 50 and 44 months is a long time, it is possible that the overall state economy may take close to six years before it reaches the 2006 peak.

Nationally, the time from peak to trough was 24 months, or two years. During this time 637,000 jobs were lost. The recovery period was slightly longer, 26 months.

At the state level, the time from peak-to-trough was 20 months. About 16,000 jobs were lost during this period. The recovery period was 24 months.

It is depressing to consider some of these number; however, it is even more unsettling to think that these numbers describe one of the state’s stronger sectors.

For additional information on the overall state economy go to the cber.co website.

©Copyright 2011 by CBER.

Colorado’s Recovery is Broad Based and Includes Primary Jobs

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Within the past month, there have been several reports citing how Colorado has one of the faster growing economies in the country. This is good news, but it must be remembered that for several years local economists were saying, “Thank God for Nevada, if it weren’t for them Colorado would have the worst economy in the country.” Part of the reason for the comparatively “strong growth” is about 150,000 jobs were lost in the Great Recession and our current tepid growth looks great compared to job losses.

Case in point…  Job losses in Colorado’s Construction sector have been so severe that employment is at mid-1990s levels. The Manufacturing sector declined for 12 years. It is just now beginning to add jobs again. Despite the build out in the Retail Trade sector, employment has been volatile over the past decade. Today it is similar to the late 1990s and retail Trade jobs are up 4,600.

With increased population in the state growth is inevitable in these sectors.

The real story is that the Colorado recovery is broad-based and it is includes primary jobs (jobs that create wealth).

The recovery has been led by the Tourism and Health Care sectors. They are sectors that add jobs in all areas of the state. There are very few primary jobs in either sector. They account for 19,000 of the 47,300 jobs added when comparing Q1 2012 to Q1 2011.

The Manufacturing and Professional Scientific sectors have added a combined total of 7,700 jobs. Many of these are primary jobs.

Colorado has added 3,900 jobs in the Employment Services sector – The addition of temporary jobs is considered a harbinger that the economy is improving.

Only two sectors recorded significant job losses during this period. Combined, the Information and Local Government, excluding schools, sectors declined by 5,700 jobs.

For additional information go to https://cber.co.

©Copyright 2011 by CBER.

BLS reports 33,000 Colorado jobs added in 2011

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The Bureau of Labor Statistics recently released its benchmark revisions for 2011 that show Colorado added 33,000 jobs in 2011. The updated total is nearly double the projected job growth of the monthly data presented throughout the year.

After peaking in 2008, approximately 150,000 jobs were shed in 2009 and 2010. Employment declines were so severe that total employment dropped below the 2001 peak. Finally, in 2011, Colorado employment again surpassed the high point in 2001.

If Colorado employment increases by about 1.7% in 2012 and 1.9% – 2.2% for the 2 years after that, it will reach the 2008 peak in 2014. In other words, it will take six years to return to the 2008 peak.
By comparison, it took 4½ years for employment to return to the 2001 peak after jobs losses associated with the 2001 recession. (Some economists are saying the full recovery will return to peak just in time for the next cyclical downturn).

Here’s to quicker recoveries from future recessions.
©Copyright 2011 by CBER.

Where are all the Startups? – Are they Really a Job Creation Machine?

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Suppose your investment advisor called you and said, “Have I got a deal for you? I will sell you 12,027 shares of a fund at $6.10 per share. The total cost to you is only $72,918. Sound good?”

Your advisor continues, “This is a killer fund. In 17 years, the price per share will rise from $6.10 to $18.30. And, in full disclosure I am required to tell you the fund will buy back a few shares along the way.  Sound good?

You reply, “Sounds great, but could you tell me more about the number of shares that will be bought back along the way?”

The advisor nervously answers, “Well, you see…the price per share increases from $6.10 to $18.10. Sound good?” Very quickly the advisor continues, “And the fund will only buy back 9,348 shares. You will still have about 22%-23% of your original shares. Sound good? Can you sign right here?”

You say, “Let me get out my calculator. That means the value of the fund is only $48,987 after 17 years. Sound good?”

The manner in which jobs are created by startups has a similar rate of return. (For purposes of this discussion, startups will be defined as companies less than one-year old that have employees. The Bureau of Labor Statistics (BLS) has tracked the performance of these companies since 1994.)

From the BLS data it is possible to look at the number of firms, average firm size, total employment, and survival rates for the firms formed in 1994. The BLS data shows:

Number of Firms
• In 1994 there were 12,027 firms.
• In 2011 there were 2,679 firms.
Average Firm Size
• In 1994 the average firm size was 6.1 employees.
• In 2011 the average firm size was 18.3 employees.
Total Employment
• In 1994 the firms had 72,918 employees.
• In 2011 the firms had 48,987 employees.
Survival Rate
• In 1994 the survival rate was 100%.
• In 2011 the survival rate was 22.3%.

Do the numbers look familiar? If not, revisit the opening paragraphs.

Startups are critical to future of our country for a variety of reasons; however, they may not be job creation machine that we have been led to believe. They add jobs in year one, but that base declines in year 2 and erodes further over time. Sound good?

With the decline in the number of startups and survival rates, this is a particularly frightening model for economic growth in the state!

For additional information on startups and job creation go to https://cber.co/ or the report “Where Are All the Startups?”

 

©Copyright 2011 by CBER.

Occupy the Labor Market – Shields Foretells Growth in Northern Colorado

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In January, Dr. Martin Shields, CSU economics professor, produced his business and economic forecast for the Northern Colorado Business Review. In short, Shields pointed out that the U.S. will see a lackluster recovery that will be driven by national and international events (debt, war, oil prices, political crises, etc.)

At the national level, Shields emphasized three points:
• “Tepid and sustained” Real GDP growth.
• The decline in unemployment will be slow as the median number of weeks that workers are unemployed remains high, based on the slow rate at which jobs are being created.
• Core inflation has returned to pre-recession levels.

The Northern Colorado economy will continue to be a mixed bag, although it has been a leader in the recovery. It is expected to continue in that role. Nevertheless, unemployment will be high by historical standards. Locals have struggled with the decline in real household income, a challenge that is likely to continue in the months ahead.

Shields also emphasized the following:
• Northern Colorado lost 5,900 jobs over the past 3 years.
• On a positive note, the region added 1,900 jobs in the past year.
• Since 2008 the number of unemployed workers in the region has increased by 6,700.
• Larimer and Weld County have performed differently during the Great Recession.
o Larimer’s labor market has been stronger
o Median household income in Larimer has declined.
o Weld County household income has remained flat.
• FFHA data shows that housing prices are stagnant.
• While it is encouraging that there is an uptick in housing starts, it must be noted that the increase is small and it is from a very low base.

Looking ahead, Shields foretells continued growth in 2012.
• The unemployment rate might approach 5.0% in Larimer County.
• In Weld County, unemployment might fall below 8.0%.
• Between 2,700 and 3,300 workers might be added to local payrolls.
The Government, Information, and Financial Activities sectors will struggle, while the energy, food manufacturing, health care, and professional business services sectors will continue to grow.

Shields heavily emphasized the term “might” in each of his projections. In closing he stated that the real challenge will be to add jobs that pay good wages.

 

©Copyright 2011 by CBER.

Where are all the Startups? – Survival Rates on Downward Path

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The U.S. and Colorado have experienced volatile economic conditions for about 20 years. There was strong growth during the go-go 1990s, follow by two major recessions during the Lost Decade. Startups play an important role in any economy, but until recently there has been little data to understand their performance. This brief analysis uses BLS data and assumes that startups are less than one-year in age and have employees.

The following are the most frequent questions asked about survival rates for startups.
• Are the rates different based on the number of years the firms have been in existence?
• Are the rates different based on when the firm was started?
• How have the rates changed over time?
The answers are explained and can be observed below.

The first question is the easiest to answer – survival rates are lower for longer periods of time.
• The range for two-year rates was 60.9% to 68.9%.
• The range for five year rates was 43.7% to 50.7%.
• The range for eight-year rates was 33.4% to 39.7%.

A partial answer can be given to the second question. Data is available for different time frames (16 years for two-year rates, 13 years for five-year rates, and 10 years for eight-year rates). For the 10-year period that is common to all three rates, the lowest rates occurred in 2001.

The 2-year survival rate was 61.6% in 2001 and 60.9% in 2008. Based on the current trends, the lowest 5-year and 8 -year rates are likely to occur in 2008. This coincides with the low points in the business cycle.

The answer to the final question is simple – survival rates have declined over time.
• The 2-year rates began declining in 1999, posted a slight increase in 2002, declined in 2006 and rebounded in 2009.
• The 5-year rates showed a steady decline beginning in 1995. There was an uptick in 2002 and 2003, but the downward trend reappeared in 2004.
• The 8-year rates showed a downward trend beginning in 1995. There was slight upward movement in 2002 and 2003.
As mentioned above, these changes have coincided with the business cycle; however, over time they are trending downward.

Are there policy decisions that could reverse this downward path? Is this downward trend a function of the quality of teaching in colleges and universities? Are the multitude of higher education entrepreneurial centers that have been started over the past two decade having a positive impact? Is this trend a function of poor service from government programs such as the Small Business Development Centers or the Small Business Administration? Have the banks failed to properly fund the startups? Or would the survival rate have been worse if the university and federal government programs weren’t in place? Or is this downward trend simply a function of ten-years of annualized Real GDP growth of 1.6%.

Startups are an important part of the economy. When data becomes available for 2010 and beyond (several years from now), hopefully it will be possible to look back and see that the downward trend has reversed.

For additional information on startups and job creation go to https://cber.co/ or the report “Where Are All the Startups?”

 

©Copyright 2011 by CBER.

The Perception of Colorado – From a Group of Site Selectors

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This past fall a group of site selectors presented a panel discussion to a packed house of metro area business leaders about their perception of Colorado as a place to do business. Their comments included a mixture of praise and criticism for the state and its economic development efforts. At times the panelists were in agreement and other times they provided contradicting information. The following is a summary of their comments.

Company Trends
The site selectors identified the following as trends within companies:
• Companies are investing in infrastructure, i.e. IT.
• Companies outside the U.S. are paying more attention to sustainability and green manufacturing.
• Companies are paying close attention to labor costs.
• Consumers are expecting improved customer service skills.
• Employee retention will become more important as workers are again viewed as more than a disposable asset.
• Labor availability is a key issue when companies think about relocating.
• Quality of service will become more important.
• Some companies are sharing services such as IT, HR, and accounting.
• There is greater speed to market in merger and acquisition activity.

Industry Trends
The panelists identified the following as industry trends:
• Aerospace will remain important.
• Biofuels will be volatile.
• Data centers are locating in Texas and North Carolina.
• Distribution centers are locating in the south.
• Energy is important in Texas, Arizona, and Colorado.
• Greater demand for third party call centers (chat, email, and video).
• Growth is expected in smaller life sciences such as Washington, San Diego, Indiana, and Florida.
• In 2010, foreign labor costs went up 9%; in 2011 they were up 24%. As a result there is increased on shoring or back shoring.
• Oil and gas services will remain important.
• Renewable energy is driven by incentives and some of those incentives are expected to expire in the near-term.
• Solar will be volatile.
• Waste recovery may be an industry of the future. For example in Denmark it is about 86%, while it is about 20% in the U.S.

Top States
The group identified the following states that are viewed most favorably by companies seeking to relocate:
• Arizona.
• District of Columbia.
• North Carolina.
• Oklahoma.
• South Carolina.
• Texas.
• Virginia.
Arizona and Texas have strong incentive programs. Colorado was perceived in a positive light, but it was not regarded as a top state for company relocation.

Things that are Important to Companies
Companies are attracted to a region for a variety of reasons. The reasons cited by the panelists were:
• Local economic developers have to be in touch with their local businesses. Site selectors indicated they would interview local companies to gauge the level at which state and local eco devo organizations were engaged with the community. They would not recommend companies to states where the eco devo staff did not visit local companies.
• Companies value support from public officials.
• Infrastructure.
• Job training funds are essential to many companies.
• Location – advantages derived from location differ based on the industry. For example, Colorado will unlikely be a focal point for manufacturing ocean liners.
• Manner in which states and communities educate the low income.
• Operating costs are important, but if operating costs were important then New York or Silicon Valley would never attract business.
• Some industries want suppliers in place and nearby, i.e. plug and play.
• Support of the community for eco devo efforts.

Incentives
For many companies, incentives are only part of the picture. The following ideas were discussed relating to incentives and other factors that influence relocation decisions:
• About 60% of companies who receive incentives are out of compliance within a year.
• Colorado incentives are not viewed well, they are a D+. Colorado will never win a project based on its incentives.
• Corporate or personal taxes can be an issue.
• For certain industries the cost of fuel is critical, i.e. fuel is a major operational cost.
• In most cases the states that can offset costs most effectively will win the battle for relocation.
• Incentives can get you on the long list.
• Right to work legislation is important to many companies.
• Some governors have been given discretionary funds for economic development purposes.
• Some states are swapping out incentives and tax credits.
• Some states have had to cut back on incentives because their economies have performed poorly.
• When considering relocation – costs are critical, in particular operating costs.

What Colorado Has Going for It
The site selectors identified some of the strengths they saw in their visits to the state:
• Conoco Phillips was attracted to the state because of the Colorado School of Mines.
• Creativity.
• Cultural aspects of the state such as museums, art galleries, and performing arts.
• Denver’s location is considered both an advantage and a disadvantage.
• Eco devo groups work together at a regional level.
• Governor Hickenlooper is viewed as a visionary and is recognized for his strengths in collaboration.
• Growth of natural gas for electricity production could benefit Colorado.
• Healthcare.
• NREL is a plus for renewable energy.
• Pride of living in a state with solid business activity.
• Talent.
• The workforce analysis of Vestas was key in having them come to Colorado.

Words of Caution or Advice
The site selectors also had words of caution and advice for state leaders:
• Colorado has to articulate the strength of its workforce.
• Colorado does not understand its strengths.
• Colorado is weak in job training funds.
• Denver does a poor job marketing itself – study what Austin has done.
• Don’t rely on NREL too much – it is a federal facility with obligations to the U.S. not Colorado. As well its funding is sporadic.
• Focus on talent you have within the state.
• It is necessary to pay attention to the strengths of the area; for example, Kansas lost aviation jobs.
• Public-private partnerships are the key to future development.
• Some day Fitzsimons will develop.

The discussion was lively and in many cases it was eye-opening, particularly for those who look at the state through lens other than those of a site selector.

©Copyright 2011 by CBER.

Colorado Economic Forecast Challenges (Education, Industries, Clusters)

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Another year, another economic forecast.

Looking ahead to 2012, the state will again experience improved, but below average employment growth. Cber.co is projecting that U.S. real GDP growth will be 2.1% to 2.5% in 2012, with employment growth of 27,500 to 37,500 in Colorado. For more details about the Cber.co 2012 Economic Forecast, click here.

There are a myriad of challenges facing the Colorado and U.S. economies in 2012. Some of the key questions relating to these challenges are categorized into the following four areas:
• Demand for goods and services;
• Debt, the financial system, and politics;
• Education and workforce; and
• Industry and cluster issues.

This post raises questions about the topics of education and workforce; and industry and cluster issues. The topics of demand for goods and services; and debt, the financial system, and politics were discussed in a post entitled “Colorado Economic Forecast – Challenges (Demand and Debt).”

Education and the Workforce
• When will the higher education bubble burst?
• How will higher education improve their performance in the classroom?
• How will the state fund PK-12 education, particularly given the outcome of the Lobato education adequacy lawsuit?
• Are high school and college students learning skills that can be transferred between professions?
• What is being done to address the mismatch between the skills that companies need and the skills of job applicants?
• What is the role of the older worker in the workforce? How are companies addressing their impending retirement?
• Has Colorado lost its pool of trained workers as a result of the Lost Decade?

Industry Issues
• How has Colorado’s high tech cluster weathered the Lost Decade?
• Has Colorado lost its critical mass of manufacturers?
• Has Colorado lost the supply chain associated with the decline in its manufacturers?
• Is Colorado saturated with retail stores?
• How will second and third generation businesses transition into the future?
• How much longer can the Health Care sector continue to add jobs?

Cluster Issues
• Is homeland security a cluster that is still important to the state?
• What happened to Colorado’s nanotechnology cluster? Five years ago it was top 10 in the country. Today it is seldom mentioned?
• Several studies have pointed to the rise of Colorado’s biosciences cluster? How will this translate into growth at Fitzsimons?
• How is the software industry going to survive and thrive given the mismatch of skills in the labor pool and the needs of the companies?
• Will 2012 be the year that photonics is recognized for its contribution to the state economy?
• Are state and local leaders poised for the volatility of the renewable energy cluster?
• How will budget reductions affect Colorado’s defense and aerospace clusters?

Clearly, it is easier to point out the difficult challenges than it is to answer questions relating to them. As well, additional obstacles will be added to the list throughout the year. While there is a lot that could go wrong, it is important to keep in mind the state has an equally impressive list of assets that can be used to address the challenges of the future. Game on!

 

©Copyright 2011 by CBER.

Colorado Economic Forecast – Challenges (Demand and Debt)

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Colorado will experience below average growth for another year. Cber.co is projecting that U.S. real GDP growth will be 2.1% to 2.5% in 2012, with employment growth of 27,500 to 37,500 in Colorado. For more details about the Cber.co 2012 Economic Forecast, click here.

There are a myriad of challenges facing the Colorado and U.S. economies in 2012. Some of the key questions relating to these challenges can be grouped into the following categories:
• Demand for goods and services;
• Debt, the financial system, and politics;
• Education and workforce; and
• Industry and cluster issues.
This post raises questions about demand for goods and services; and debt, the financial system, and politics. The topics of education and workforce and industry issues will be discussed in the post dated January 16th.

Demand for Goods and Services
• Will there be sufficient demand for goods and services given the high unemployment rate and minimal wage increases?
• Will companies be able to pass on increased input costs to customers and maintain demand?
• How much longer can manufacturing shipments and output increase without adding to their workforce?
• There is an apparent lack of new firm creation. Is this caused by a lack of demand or insufficient innovation?
• What is being done to protect and encourage innovation?
• For the most part, companies have adequate access to capital. Do they know how to access it? When will there be enough demand for them to need additional capital?

Debt, the Financial System, and Politics
• Europe is a major trading partner for Colorado. How will the EU debt crisis impact the U.S. and the state?
• Worldwide there are countries other than Greece and Italy with public and private debt issues. Is anyone paying attention?
• Are our leaders paying attention to both the public and private debt crisis in the United States?
• Is the U.S. financial system sufficiently stable?
• How much uncertainty will be caused by the upcoming elections?
• Will politicians be able to instill confidence in the government after the elections?

Colorado will face these and other challenges in 2012. It will be interesting to look back a year from now and see how these issues unfolded and how state public and private leaders addressed them.

©Copyright 2011 by CBER.

Governor’s Office Kicks Off Manufacturing Initiative

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In early December the Governor’s Office of Economic Development and International Trade (OEDIT) convened a Working Group to develop a State-wide Strategic Plan and Implementation Plan for the state’s manufacturing sector. The following information describing the process is either taken directly or paraphrased slightly from OEDIT communications about that effort.

The Strategic Plan will be created by chief executives from businesses across the state (Steering Committee) and the Implementation Plan will be created by government, economic development organizations, academia, non-profits and trade associations (Tactical Team).

In mid-December the Steering Committee met for 3 hours with a facilitator to create the vision, mission statement, and the major goals for the core objectives in the Colorado Blueprint. A follow up meeting may be needed in January.

The Tactical Team met for 5 hours to identify the tactics and action items necessary to achieve each of the goals identified by the Steering Committee in order to create a 1, 2 and 3 year Implementation Plan.

The work of the Steering Committee and the Tactical Team will provide a basis for retaining and growing existing Colorado companies and increasing the global competitiveness of Colorado’s industries.

The six core objectives are included below.

Business Environment refers to the government-driven factors that affect a company’s operations, including:
[1] local, state, and federal government regulations;
[2] local, state, and federal tax environment (sales and use, property tax, tax exemptions, and incentives); and
[3] any other Colorado business environment issues, such as utility or labor costs.

Business Development refers to the retention and expansion of existing Colorado operations and the recruitment and attraction of business prospects that:
[1] consist of national and global companies that are primary competitors and/or collaborators within the industry and would deepen the industry if brought to Colorado;
[2] consist of national and global companies critical to the value chain, supply chain and/or distribution chain for the industry in Colorado and would increase competitiveness if brought to Colorado; and
[3] provide access to international markets for export of products or services provided by companies within the industry.

Business Funding refers to:
[1] the lending climate between banks and companies in the industry in Colorado;
[2] activity level of private investors (angel and venture) with companies in the industry in Colorado; and
[3] access to other types of financing, including foreign direct investment.

Industry Branding refers to:
[1] the reputation that the industry in Colorado has on a national and global level—what level of “awareness in the marketplace” does the industry posses;
[2] the awareness of the industry locally and the affect on the ability of companies to attract potential employees, entrepreneurs or investors;
[3] the reputation that the industry has among the general public and policy-makers in Colorado and the associated effect on policy.

Education & Workforce refers to:
[1] the current talent pool—availability of qualified and high quality talent to grow the companies in the industry;
[2] the development of the future talent pool—availability of high quality and dynamic post secondary programs (universities, colleges, applied technical colleges, workforce centers) preparing and/or retraining students and workers to participate in the industry workforce;
[3] entrepreneurial training focused on developing new ventures within the industry.

Innovation & Technology will be addressed uniquely by all industry, but in general refers to:
[1] research and development activity within the industry within Colorado at universities, private research labs, or federal labs;
[2] activity in technology transfer and commercialization of products within the industry in Colorado and associated entrepreneurial activity;
[3] the impact of technology on increasing productivity of companies within the industry in Colorado.

Updates will be available on the OEDIT website.

 

©Copyright 2011 by CBER.