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All Jobs are Important to the Economy

May 13, 2015December 22, 2015 horvath Leave a comment

All jobs are important to the economy for different reasons.

For example, health care jobs make it possible for us to maintain a high quality of life. Construction jobs allow us to build new homes, commercial space, and maintain and improve the quality of our roads. Tourism jobs make it possible for us to enjoy the mountains, the waterways, and the natural beauty of Colorado.

Primary jobs are particularly important because they bring in wealth from outside the state to produce products that are then exported. Manufacturing jobs, such as those at Vestas or Ball Aerospace, are examples of primary jobs. Quite often primary jobs have higher than average wages.

On the topic of wages…

In 2014, average Colorado private sector wages for all industries were $53,068.

Although 2015 has been a solid year for job growth, there have been concerns the state has been adding too many low-paying jobs and that wage increases have not kept up with inflation.

Through the first six months of 2015 average wage and salary employment for the private sector is 63,500 greater than the same period in 2014.

For the first half of 2014 the leading sectors for job growth were:
• Private Education and Health Care added 15,400 jobs. The sector accounted for 24.3% of total jobs added. Average annual wages for 2014 were $45,879.
• Accommodations and Food Services added 12,900 jobs. The sector accounted for 20.3% of total jobs added. Average annual wages for 2014 were $19,445.
• Construction added 12,700 jobs. The sector accounted for 20.0% of total jobs added. Average annual wages for 2014 were $53,664.
Only the wages for the Construction sector were slightly greater than the state average.

These three sectors accounted for about two-thirds of the jobs added in the first half of 2015. Estimated average annual wages for these sectors was $39,973, based on 2014 average wages.

Average annual wages for the following sectors were below the state average.
• Administrative and Wage Management.
• Arts, Entertainment, and Recreation
• Other Services
• Retail Trade
In the first half of 2015 they accounted for slightly more than 9% of jobs added. Estimated average annual wages for these sectors was $31,677, based on 2014 average wages.

The seven sectors mentioned above accounted for about three-fourths of the job growth in the first half of 2015, yet the average wages for these jobs were about $38,945. This is well below the state average.

The following sectors were responsible for slightly more than one-fourth of the state’s job growth in the first half of the year. All sectors have average annual wages above the state average.
• Corporate Headquarters (MCE)
• Financial Activities
• Information
• Manufacturing
• Natural Resources and Mining
• Professional and Scientific
• Transportation, Warehousing, and Utilities
• Wholesale Trade
Estimated average annual wages for these sectors was $78,685, based on 2014 average wages.

There are several takeaways from Colorado’s wage and job growth in the first half of 2015:
• Jobs and wages don’t expand at an even pace across all industries.
• Strong job growth is not always accompanied by strong wage growth.
• Strong growth in low paying sectors has been accompanied by declines or minimal growth in some higher paying sectors.
• The wage and salary employment data may not be accurately representing actual job growth in the state.

Strong job growth may not translate into increased consumption because average annual wages for many of the additional workers are well below the state average. In turn, the addition of a disproportionate number of lower wage jobs may result in lower than expected tax collections for state and local governments.

All jobs are important, but sometimes higher paying jobs have a greater importance than lower paying jobs.

Where is the Colorado Oil and Gas Industry Headed?

May 1, 2015May 22, 2015 horvath Leave a comment

There has been concern by some that the freefall in the price of a barrel of oil last year would cause a sharp downturn in the Colorado economy.

In fact, the University of Colorado Leeds School of Business has projected that the loss of oil and gas jobs will cause total employment to grow at a rate less than 2.0% this year. That means that average employment for the year would be less than 50,000. It would also mean that average job growth for the last three quarters of the year would be at most 41,000 jobs.

The 2015 cber.co forecast projected a slight decline in the rate of growth (+73,000 to 79,000 jobs), in part because of uncertainty in the oil and gas industry. It seems unlikely the decline will be as severe as projected by the Leeds School.

A frequently quoted data set is rig count. The data shows a sharp drop-off in the number of rigs. The immediate reaction is that “the sky is falling.”

Industry experts state this decline in the number of rigs has occurred, in part, because companies have taken their older and poorer performing rigs off-line to increase their efficiency. This is no different than the Denver Broncos cutting Champ Bailey. A decrease in the number of rigs will eventually point to a decline in the number of employees.

In addition, some companies are adopting improved technology, which has the potential to make the drilling process much more efficient and environmentally friendly. Increased efficiency means that when some of these jobs go away they won’t ever come back. In that sense, the oil and gas industry is moving down the same path as manufacturing and other industries.

Another interesting data set is oil production.

Colorado oil production reached records levels in 2014 and is expected to remain strong through Q1 2015. Levels of production may drop off in Q2 as storage becomes an issue.

Another issue affecting production levels is demand. Global demand for oil has been declining as alternate sources of energy have become more available. In addition, more efficient automobiles and other devices have reduced consumption. Despite the decline in demand, the U.S. has become less dependent on foreign countries for our oil supplies. In turn that will drive demand for U.S. oil.

Looking ahead – employment in the Colorado oil and gas industry will either grow at a slower rate or decline slightly in 2015. The state economy is on solid enough footing that many of those lost jobs will be offset by increases in other industries such as construction, finance, and manufacturing.

In short, the Colorado Oil and Gas Industry is in a state of flux, but it is unlikely that volatility will cause a noticeable downturn in state employment.

Q1 2015 Colorado Employment Posts Solid Growth

April 25, 2015May 22, 2015 horvath Leave a comment

On April 21, the Bureau of Labor Statistics released its monthly wage and salary employment data for Colorado. Job growth for Q1 2015 was 3.1%, or 74,800 jobs, greater than Q1 2014. The Q1 2015 growth is down slightly from the 2014 annual average of 78,900 jobs; however it is in line with the 2015 cber. co forecast that calls for an increase of 73,000 to 79,000 jobs, or job growth at a rate of 3.0% to 3.2%.

The preliminary March 2015 Colorado employment was 68,900 jobs greater than the March 2014 value. The year-over-previous-year increase for February was 80,800 jobs. It was 74,600 jobs for January.

The lower level of growth in March does not necessarily signify a downward trend. Most likely it is a reflection of volatility related to changes in the extractive industries.

About 67.0% of total jobs added were in the Health Care; Accommodations and Food Services; Construction; Profesional, Scientific, and Technical Services (PST); and Manufacturing sectors.

Approximately 21.3% of all jobs added were in Leisure and Hospitality; however, the BLS estimate model has most likely overstated this YTD contribution.

About 9.9% of total jobs added were in the PST, Manufacturing, and Information sectors. These sectors are the source of primary and advanced technology jobs.

Nationally, average employment for Q1 2015 is about 2,265,133 jobs greater than Q1 2014 employment. While this rate of growth is solid, the Q1 value is less than the average number of jobs added during 2014 (2,313,033). A brutal winter in parts of the country prevented employment and output during the first quarter from being stronger.

The cber.co forecast for U.S. job growth in 2015 is 2,600,000 workers. Stronger job growth is expected in the second half of the year.

2015 cber.co Forecast – Fine Tuning the Volatile Category

April 13, 2015April 15, 2015 horvath Leave a comment

In preparing its annual forecast, cber.co divides the NAICS sectors into three categories. This portfolio approach makes it easy to see that some sectors consistently create jobs at a higher rate of growth, some show solid growth, and others are more volatile. Ultimately, the volatile category tends to have a greater influence on the magnitude of change in total job growth than the sectors with steady growth. In March 2015 BLS released its benchmark revision of the 2014 data. The changes were more significant than usual.

As a result the 2015 cber.co forecast was fine-tuned to have a better understanding of categories and sectors that were driving the economy. This brief discussion highlights the revisions to the 2015 cber.co forecast. This post will evaluate the Volatile Category.

The Volatile Category

Over the past two decades the sectors listed below were the primary source of volatility in total employment.

The sectors are:

Natural Resources and Mining
Construction
Manufacturing
Transportation, Warehousing, and Utilities
Employment Services
Financial Activities
Information
Federal Government

Total employment for this category was:

1994 625,400 workers, 35.6% of total employment
2004 716,000 workers, 32.8% of total employment
2014 713,000 workers, 29.0% of total employment

Estimated Job Growth

As can be seen below there is a significant difference between the original estimates for 2014 (January 11) and Benchmark revisions for 2014 (March 27). BLS significantly underestimated growth in this category in 2014.

The original Volatile Category estimates/forecast (January 11 Forecast) was + 23,000 to 27,000 Employees.

19,800 jobs added in 2013
25,600 jobs added in 2014
706,100 employees in 2014

In 2015 between 23,000 and 27,000 jobs will be added, at a rate of 3.3% to 3.7%. This rate of growth is slightly slower than 2014.

The updated Volatile Category estimates/ forecasts, after benchmark revisions (March 27 Forecast) was + 23,000 to 27,000 Employees.

22,200 jobs added in 2013
30,000 jobs added in 2014
713,000 employees in 2014

In 2015, between 23,000 and 27,000 workers will be added at a rate of 3.2% to 3.8%. Despite the significant underestimate in 2014, the forecast for 2015 was unchanged.

The recalibration of the 2015 forecast resulted in the following changes:
• The Strong Growth Category was revised upward by 4,500.
• The Solid Growth Category was revised downward by 1,500.
• The Volatile Category remained unchanged.
• The net change to the 2015 forecast was an upward revision of 3,000; however, the 2015 forecast is for total growth slightly below the 2014 total.

The change in the mix of jobs being added is equally as important as the change in the number of jobs being added. For further information on the cber.co forecasts click here.

2015 cber.co Forecast – Fine Tuning Solid Growth Category

April 7, 2015April 15, 2015 horvath Leave a comment

In preparing its annual forecast, cber.co divides the NAICS sectors into three categories. This portfolio approach makes it easy to see that some sectors consistently create jobs at a higher rate of growth, some show solid growth, and others are more volatile. Ultimately, the volatile category tends to have a greater influence on the magnitude of change in total job growth than the sectors with steady growth.
In March 2015 BLS released its benchmark revision of the 2014 data. The changes were more significant than usual.

As a result cber.co fine-tuned the 2015 employment forecast to have a better understanding of categories and sectors that were driving the economy. This brief discussion highlights the revisions to the 2015 cber.co forecast. This post will evaluate the Solid Growth Category.

The Solid Growth Category

Over the past two decades the following sectors generally posted gains. The category posted stronger jobs gains during the 1990s than the 2000s.
• Wholesale Trade
• Retail Trade
• State (Not Higher Education)
• Higher Education
• Local (Not K-12 Education)
• K-12 Education
• Accommodations and Food Services

Total employment for this category was:
1994 685,400 workers, 39.0% of total employment
2004 848,000 workers, 38.9% of total employment
2014 961,100 workers, 39.0% of total employment.

Estimated Job Growth

As can be seen below there is a significant difference between the original estimates for 2014 (January 11) and Benchmark revisions for 2014 (March 27).

The original Solid Growth Category estimates/forecast (January 11 Forecast) was + 20,000 to 24,000 Employees.

• 27,600 jobs added in 2013
• 25,200 jobs added in 2014
• 964,000 employees in 2014
• In 2015, between 22,000 and 28,000 workers will be added at a rate of 2.6% to 2.8%. The rate of growth is similar to 2014.

The updated Solid Growth Category estimates/ forecasts, after benchmark revisions (March 27 Forecast) was+ 22,500 to 26,500 Employees.

• 26,700 jobs added in 2013
• 23,300 jobs added in 2014
• 961,100 employees in 2014
• In 2015, between 22,500 and 26,500 workers will be added at a rate of 2.3% to 2.8%

BLS overestimated the growth of jobs in the Solid Growth Category.
As a result changes were made to the 2015 category and total employment projections.

In 2015, the rate of growth will be 2.3% to 2.8%. This rate of growth is similar to 2014 and most years during the 1990s.

The change in the mix of jobs being added is equally as important as the change in the number of jobs being added.

For further information on the cber.co forecasts click here.

2015 cber.co Forecast – Fine Tuning Strong Growth Category

March 27, 2015April 15, 2015 horvath Leave a comment

In March 2015 BLS released its benchmark revision of the 2014 data. The changes were more significant than usual.

The Solid Growth Category

Over the past two decades the following NAICS sectors have been the foundation for consistent growth in Colorado employment.
• Professional, Scientific, and Technical Services
• Management of Companies and Enterprises
• Administrative – Business to Business (Not Employment Services)
• Private Education
• Health Care
• Arts, Entertainment, and Recreation
• Other Services.

Total employment for this category was:
1994 445,200 workers, 25.4% of total employment
2004 615,900 workers, 28.3% of total employment
2014 786,700 workers, 32.0% of total employment

Estimated Job Growth

As can be seen below there is a significant difference between the original estimates for 2014 (January 11) and Benchmark revisions for 2014 (March 27).

The original Strong Growth Category estimates/forecast (January 11 Forecast) was + 20,000 to 24,000 Employees.
• 20,300 jobs added in 2013
• 20,900 jobs added in 2014
• 782,500 employees in 2014
• In 2015, between 20,000 and 24,000 workers will be added at a rate of 2.8% to 3.0%.

The updated Strong Growth Category estimates/ forecasts, after benchmark revisions (March 27 Forecast) was + 24,500 to 28,500 Employees.
• 20,000 jobs added in 2013
• 25,600 jobs added in 2014
• 786,700 employees in 2014
• In 2015, between 24,500 and 28,500 workers will be added at a rate of 3.1% to 3.6%.

BLS significantly underestimated the magnitude of growth in total employment as well as the increase in the number of jobs in the Strong Growth Category. As a result changes were made to the 2015 category and total employment.

In 2015, between 24,500 and 28,500 workers will be added. The rate of growth will be 3.1% to 3.6%. This rate of growth is slightly greater than 2014. Absolute job growth of this category will be similar to job growth in 2007 and 2014.

Total employment for the state will increase by 73,000 to 79,000.

The recalibration of the 2015 forecast resulted in the following changes:

• The Strong Growth Category was revised upward by 4,500.
• The Solid Growth Category was revised downward by 1,500.
• The Volatile Category remained unchanged.
• The net change to the 2015 forecast was an upward revision of 3,000; however, the 2015 forecast is for total growth slightly below the 2014 total.

The change in the mix of jobs being added is equally as important as the change in the number of jobs being added. For further information on the cber.co forecasts click here.

2014 Unemployment Rate – Challenges and Positives for 2015

March 8, 2015April 13, 2015 horvath Leave a comment

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.

Colorado Manufacturing Could be Stronger

March 2, 2015February 22, 2015 horvath Leave a comment

The Manufacturing Sector is critical to the Colorado economy because it is a source of primary jobs that pay higher than average wages. In addition, manufacturers bring in revenue from outside the state that is spent in Colorado and they export goods to domestic and international destinations.

In 1990, manufacturers accounted for 11.3% of total state employment. In 2014, only 5.6% of Colorado’s employees were in the manufacturing sector. Around 2000 the number of manufacturing workers in Colorado and across the U.S. declined as companies outsourced and off shored. As well, the back-to-back recessions in the 2000s forced manufacturers to become more efficient. They accomplished this by investing in capital expenditures rather than labor.

Compared to most other parts of the country, Colorado has never been a strong manufacturing state. It is the proud home to world-class manufacturers such as Ball Aerospace, Miller Coors, and Leprino Foods. Most manufacturers are small businesses that produce everything from tacos to optical mirrors.

The state’s manufacturing sector is concentrated in pockets along the Front Range:
• Boulder County is at the forefront for its high tech manufacturers.
• Weld and Pueblo Counties are strong in renewable energy. Vestas has been a significant source of manufacturing job growth over the past decade. In addition, Weld County is home to various ag-based manufacturers.
• A majority of the state’s manufacturers are located in Denver.

The location quotient for all wage and salary manufacturing workers, or the concentration relative to other industries, is well below 1.0. It trended downward from 1990 to 2001, but has been relatively flat since then.

Here’s to growth for the Colorado manufacturing sector in years to come.

General Fund Projections Provide Positive Outlook for Colorado

February 24, 2015February 21, 2015 horvath Leave a comment

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.

Colorado Population – 5.4 Million in 2015

February 18, 2015February 21, 2015 horvath Leave a comment

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.