Expect Solid Job Growth in Upcoming BLS State Release

On Friday November 20th, the BLS will release the state wage and salary employment data through October. In light of the release of U.S. employment earlier this month, the state data is likely to show solid job growth in most cases. This brief overview of the national economy sets the tone for the upcoming release of the Colorado data.

The U.S. Economy
In a nutshell, some of the top reasons to feel upbeat about the U.S. economy are:
• U.S. Consumer Sentiment is up as measured by the University of Michigan Consumer Sentiment Survey.
• There was strong U.S. job growth for October – 271,000 jobs were added.
• The U.S. unemployment rate continues to decline. Theoretically, the U.S. is at or near full employment and the economy is operating efficiently.
• The ISM Non-Manufacturing Purchasing Managers Index is strong.
• Construction spending continues to be strong.
• Many companies are cash rich and they are strategically expanding through mergers and acquisitions.
• Inflation remains low.

Turbulence – Concerns That we Have Come to Grips With
There are always reasons for people to feel jittery about the economy.
• Since 2010 there have been concerns that the Greek debt crisis would unravel the EU. Those concerns reappeared earlier this year, but have subsided.
• There are worries that the slowdown in the growth rate for the Chinese economy and the impact it will have on their immediate trading partners will cause a downturn in the global economy. This is less of an issue than it was several months ago
• The summer volatility in the equity markets has subsided. The VIX has dropped from almost 41 in late August to about 17 on November 19th. Much of the lost ground has been regained. For example, the S&P 500 closed at 2,081 on November 19th, up from 1,868 in late August.
• The inaction of the Fed to raise interest rates is reminiscent of a shy high school boy who is smitten with his first girl friend. He keeps thinking, “Is now the right time for me to kiss her.” And she is thinking, “He must not like me because he won’t kiss me.” While many agree that a rate increase is long overdue, the issue is the timing of that increase – just like that first kiss. Now is the time.

Turbulence – Areas that Continue to Make us Uneasy
Terrorism and the price of oil are areas that cause everyone to toss and turn at night.
• It is unlikely we will ever get used to the “sick-in-your-stomach feeling” caused by ISIS and other terrorist groups. Their direct impact is psychological. Indirectly, consumers will be more cautious and businesses will be obligated to spend more on security.
• For over a year now, the price of oil has disrupted the economies in Tier I oil producing states. In some states such as Colorado, production has remained strong; however, it will likely drop off as there is a glut of oil and a lack of storage facilities. Problems in the industry could be exacerbated by further declines in the price for a barrel of oil caused by the glut. Some industry experts project oil could drop to $20 per barrel.

Other National Concerns
Holiday retail sales are projected to increase by 3.5% to 4.0% compared to last year and online sales will be double that amount. This is solid growth, but is an issue only in the sense that it is not stronger.

The major concern about the U.S. economy is the manufacturing sector. The ISM manufacturing index has trended downward since August 2014 and has been near 50 for the past two months. Purchasing managers are ambivalent about the level of growth in their companies. At the moment the industry appears to be on the verge of a downturn.

Concluding Thought
With this as a background, Coloradans should expect the upcoming BLS report to say that job growth will be much stronger than recent months.

The Strengths of the National Economy will Impact Colorado

The U.S. economy is currently stronger than it was in 2014. The good news is the Colorado economy is outperforming the U.S. economy in three key areas:
• The Colorado rate of population growth in 2015 is projected to be 1.6% vs. 0.7% for the U.S.
• The Colorado rate of job growth in 2015 is currently projected to be 3.0% vs. 2.2% for the U.S.
• The recently released GDP data shows that Colorado outperformed the U.S. in the rate of growth, 4.7% vs. 2.2% in 2014.

Currently, the strengths of the national economy outnumber the risks. With that in mind this post reviews the manner in which these strengths will impact the Colorado economy.  For each strength the impact on Colorado is highlighted in italics.

The Fed – Janet Yellen has indicated the Federal Reserve is confident the U.S. economy is performing well enough that interest rates can be raised.

Colorado has experienced stronger economic growth than the nation throughout the first half of the year. The state will continue to experience solid growth in the second half of the year.

Real GDP – After a weak start in Q1, Real GDP growth for the year is projected to be in the 2.5% to 2.9% range – better than last year.

In 2014, Colorado’s rate of Real GDP growth was more than twice that of the U.S. Solid growth is expected to continue in 2015.  strengths of the national economy - retail

Retail – The woes of Q1 seem to be behind us. Consumer spending is expected to be stronger in the second half. This may lead to strong back-to- school sales – a significant source of sales for retailers.

The Colorado economy had strong momentum coming into 2015. It did not experience problems felt elsewhere in Q1. Population and job growth will drive continued solid retail growth in 2015.

Jobs – The U.S. is on track to add more than 3.0 million jobs this year. The unemployment rate and the long-term unemployment rate have continued to decline.

As the year has progressed, U.S. job growth has increased at a solid, but decreasing rate. A similar trend may be happening in Colorado.

Consumer Sentiment – According to the Consumer Sentiment Survey, consumers are upbeat.

The mood of shoppers in the malls and the waiting times at local restaurants suggests that Coloradans are upbeat about the economy.

Industry Sentiment – Purchasing managers have a positive outlook for both goods and services. Manufacturing is more sluggish and may remain that way through the end of the year.

Continued optimism in the non-manufacturing sectors points to ongoing solid growth for these sectors and the Colorado economy.

Inflation – Inflation is below the Fed’s target rate of 2.0%. As interest rates increase, inflation will approach the target rate.

The increase in Colorado housing prices will cause the state’s rate of inflation to further exceed that of the nation.

Construction – There is strong activity in both the residential and non-residential markets. Construction job growth will be constrained by the lack of trained workers.

Despite the lack of trained construction workers, Colorado’s construction industry is responsible for about 18% of the jobs added in 2015.

Housing Prices – The housing market remains strong – too strong in some areas.

Home owners like having greater equity and local governments benefit from higher property taxes.

These strengths of the national economy have created momentum that will strengthen the U.S. and Colorado into 2016.