Tag: Economy

Colorado Legislative Council – U.S. Economic Update December 2010

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The December 20,2010 release of Colorado Legislative Council ‘s Focus Colorado: Economic and Revenue Forecast  gives reason to be more optimistic about the performance of the national and state economy in the months ahead. Generally speaking, most key economic indicators received slight upward revisions.

At the national level the following bright spots were highlighted:
• Corporate profits have reached record levels.
• There have been 5 consecutive quarters of economic growth (GDP).
• World trade has bounced back.
• Personal income (wages and salaries, interest and dividend income, business income, rental income, and government assistance) has returned to pre-recession levels.
• Consumer spending has grown at a steady pace.
• Business investment has been a major factor in economic growth.

The following areas of concern about the U.S. have a familiar tone:
• Current economic growth is slower than mid-2009 because of decreased business inventories and the end of stimulus funding.
• Stagnant housing prices, high levels of unemployment, and volatile consumer confidence will limit consumption.
• Credit remains constrained.
• The country needs monthly job growth of 140,00ish jobs per month to keep unemployment from rising. For the past year, average growth has occurred at about half that level.
• While there is reason for optimism, it is likely that the economy will again be a major factor in the 2012 elections.

The recent update reflects minor changes to key national economic indicators for 2011:
• Real GDP remains at 2.9%. By comparison, average output growth for the 1990s was 3.2% followed by 1.8% in the 2000s.
• Employment is projected to grow at a rate of 1.1%, down from the September forecast of 1.2%.
• Unemployment will improve to 9.5%, down from 9.7% in the prior outlook.
• Inflation will increase slightly. The forecast was bumped upward from 1.5% to 1.7%.

This sets the stage for an improved outlook for Colorado in 2011.

©Copyright 2011 by CBER.

Delivering The Next American Economy

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In early December the Brookings Institute sponsored the Global Metro Summit – Delivering the Next American Economy . The purpose of the event and webinar was to discuss their vision for long-term growth to occur in the U.S.

The foundation of their vision for short-term job growth and long-term economic success is better utilization of the strengths of our top 100 cities. To illustrate this point they cited a series of statistics. For example, two-thirds of the U.S. population lives in the top 100 metro areas, three-fourths of the GDP is generated there, and 94% of venture capital funding occurs in these focal points of business.

Bruce Katz, Brookings Vice President identified the following as the means for better utilizing the U.S. centers of commerce:
• Innovation is essential in delivering the “next economy”. The development and implementation of new ideas is essential for positioning the U.S. as a global leader, both in economic and social reform. On the economic side of the equation, this will allow American companies to develop distinct competencies. From a social perspective, innovation also has the potential to raise the standards of individuals with lower incomes. American innovation is most likely to occur in our top metro areas.
• Increased global demand and the growth of third world countries will result in increased exports. Today, the top U.S. cities will have a chance to develop strategies with other cities (rural and metro), states, and regions to take advantage of this opportunity.
• The energy revolution will bring about change through the use of alternate energy sources. It is essential for the world to develop cleaner and more diverse sources of energy, particularly for use in the top 100 cities.

While Katz’s notions are well conceived and thought out, time will tell if they will become the driving force of the next economy or if they are great ideas that will be celebrated by urban leaders, scorned by rural communities, and ignored by political leaders because they are perceived as too self serving.

©Copyright 2011 by CBER.

Money Museum to Open at Denver Fed

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The Denver Branch of the Federal Reserve Bank of Kansas City recently announced that it will open a “Money Museum” and conference center in downtown Denver in early January. The museum will highlight exhibits discussing the responsibilities of the Federal Reserve. For example, information is provided about how the Fed establishes monetary policy with the intent of maintaining a stable economy.

In addition the museum will include displays that show how to detect counterfeit bills and the amount of space that is needed to store $30 million. Visitors may also receive samples of worn out or historical currency that has been shredded.

An important function of the museum is to provide education opportunities for K-12 students and teachers. The museum website indicates that class visits include a 30 minute presentation of personal finance concepts. More extensive sessions are available for K-12 teachers that demonstrate how to meaningfully incorporate economics and financial principles into the classroom.

The Denver Branch is located on the 16th Street Mall in Downtown Denver, between Arapahoe and Curtis streets.  Published hours for the museum are 8:30 a.m.-4:30 p.m. weekdays except bank holidays. Additional information can be obtained by visiting the Kansas City Fed website (www.kansascityfed.org/moneymuseum).

 

©Copyright 2011 by CBER.

Colorado Forecasts In – Tax Legislation will be Game Changer

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A review of the various Colorado economic forecasts for 2011 is encouraging. On a comparative basis, they are generally upbeat. The outlook is for continued improvement in the national economy and ultimately more jobs in Colorado.

Over the past 25 years, the Colorado economy has more closely resembled the U.S. economy (the world’s most diverse). As a result the state’s fortunes have mirrored those of the nation.

For that reason, much attention is given to projections for Real GDP growth. While output is not a leading indicator, Real GDP forecasts provide insight into the factors that will drive change in the national economy in the months ahead.

Overall, most expectations for 2010 have been raised slightly over the past month. The justification for these increases is the buildup of inventories, increased consumption, and improved consumer confidence. These are positive signs that will carry over into 2011.

To review briefly… Currently, most output projections for 2011 are in the range of 1.7% to 3.5%.

On the employment side of the equation, the 2011 outlook range varies from flat, or slightly negative, (Colorado Demography Office, November) to growth in the range of 33,000 employees, or 1.8% (Jeff Thredgold, September). Both OSPB and the Colorado Legislative Council, the two agencies that provide forecasts for the state government, will present their updated forecasts for the state during the second half of the month. CBER takes a middle ground with 15,000 jobs added.

This past week, Congress introduced a potential game-changer.   Legislation has overwhelmingly passed the Senate that would extend the Bush tax cuts, reduce payroll taxes, and extend the unemployment insurance benefits. If passed, this legislation has the potential to increase consumer confidence, spur additional spending, strengthen demand, and ultimately add jobs. (At the state level, this may have the potential the push job growth to the upper end of the above mentioned range – 30,000+.)

The downside is that the legislation will significantly increase debt, potentially worsen income equality, increase dependence on financing from foreign lenders, and reduce potential funding for other essential investments that might stimulate long-term growth such as financial support for aerospace and technology, other scientific research, education, homeland security, infrastructure, and health care.

There are two schools of thought. On one hand, it is believed that addition stimulus is necessary and that this legislation along with the recent quantitative easing will make the difference. At the same time, it has been said that the leaders are determined to buy a good economy without regards to the long-term cost at a time when the only solution is time.

Time will tell.

©Copyright 2011 by CBER.

Small Business Start-Ups on the Decline?

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During a typical recession, the number of new or start-up businesses increases as some individuals start their own firms when they lose their jobs. As these start-ups become successful, job creation occurs, thus shortening the recovery periods. Unfortunately, the Lost Decade is not your typical recession.

On December 8, Aaron Smith of Moody Analytics reported that an analysis of BLS  data shows that the number of self-employed people fell from a peak of 15.5 million in December of 2006 to 13.7 million in October of this year, or a decline of 1.8 million. He went on to say that over the past decade, the self-employed have comprised 9.5% to 10.5% of the U.S. workforce, and today that percentage is closer to 9.5%.

Both Smith and others agree that small business sentiment is improving. For example, Vectra Bank’s Colorado Small Business Index has posted miniscule, but steady gains for the period of July through October. Despite increased optimism, small businesses do not appear to be thinking about expansion of capital expenditures, hiring, and increased inventory.

Assuming there is not a major revision in the data, this analysis raises a series of questions:
• Is this problem driven by a lack of demand or availability to credit? While both have been a problem, NFIB  research suggests that lack of demand has been more problematic.
• Is this reduction in startups tied to cutbacks in manufacturing and high tech jobs or might it be a function of increased dependence on imports?
• Has there been a structural change in our economic infrastructure that has diminished demand for start-ups?
• Is this a sign that the U.S. has lost its edge in competitiveness or innovation?
• Does this downward trend in firm creation exist in small-business-friendly states such as Colorado?

Hopefully this downturn in small business activity is just a brief hiccup, and that there will be a resurgence in start-ups in the near-term.

©Copyright 2011 by CBER.

REO – Bright Light in the Down Economy

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Although Colorado’s high tech cluster has been hit hard during the “lost decade” there are some bright spots. On November 17 the Colorado Photonics Industry Association (CPIA)  recognized Research Electro-Optics, Inc. (REO)  as one of those bright spots when it named it the 2010 Colorado Photonics Company of the Year.

REO is a precision optics and thin film coating company founded in Colorado in 1980. It services small to medium to high volume OEMs including manufacturers of defense and aerospace systems, laser systems, semiconductor tools, medical systems, life sciences instrumentation and telecommunications equipment.

In recent years REO has expanded its staff and increased its new manufacturing and technology assets. REO officials indicated that they have been profitable for all of the past six years, with double-digit growth in several of those years. The company is privately held, with 2010 annual sales projected to be in the neighborhood of $40 million.

The Colorado photonics cluster received a boost during the mid-1980s, around the time REO was started. At that time, the Colorado Advanced Technology Institute (CATI) provided a small matching grant for at National Science Foundation Center of Excellence at CU and CSU. That grant ultimately led research that was commercialized to form 20 companies.

As an enabling technology, photonics touches many industries, such as aerospace, renewable energy, homeland security, biomedical devices, telecommunications, and defense. This allows companies, such as REO to diversify their product line and clients, thus insulating them from turbulent economic times.

Congratulations to REO!

©Copyright 2011 by CBER.

CSU Forecast – Job Growth Less Than One Percent

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On November 16, the Colorado State University ‘s Economics Department held its Colorado Employment Outlook for 2011. This event featured employment forecasts for various regions throughout Colorado as well as an overall forecast for the state.

Like many other forecasting groups, the CSU team accurately predicted the downturn; however, they did not project the full magnitude of the recession. The state forecast stated that employment growth would be less than 1% in 2011, or about 19,000 workers. The Denver metro area will record positive job growth, although the Boulder area will show weaknesses based on their high concentration of manufacturing and high tech. Mixed results are on the horizon for the state’s resort counties and rural parts of the state.

The forecast team worked with the staffs of the Denver Branch of the Kansas City Federal Reserve  as well as the Colorado Office of  Labor Market Information , the state agency that prepares labor and employment data for the Bureau of Labor Statistics .

For additional information contact Dr. Martin Shields or Dr. Harvey Cutler.

©Copyright 2011 by CBER.

Colorado to add 15,000 Jobs in 2011

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In late October, the Bureau of Labor Statistics released its first estimate of September employment data for Colorado. Based on that report, the state is on track to lose 35,000 jobs in 2010. (Preliminary 2010 data will be released in March 2011.)

Recently, many of the nation’s top economists have revised their 2011 Real GDP forecasts downward, in the range of 1.9% to 2.6%. Output growth of 2.4% points to a miniscule job increase of 0.7%, or 15,000 jobs, for Colorado next year.

This Colorado economic forecast  was shared with state business and government leaders this past week. A summary of the responses from these individuals follows:

  • The country should be concerned about the effect the Lost Decade will have on its competitiveness.
  • The recent announcement that Q3 Real GDP was 2.0% is better than expected; however, if output growth continues at this level next year, Colorado cannot expect meaningful job growth.
  • The lack of overall growth in the economy is reflected in the real estate market.
  • Colorado typically lags the nation in entering and exiting economic downturns. Colorado’s exit from the Great Recession seems to be slower than that of the nation – despite lower unemployment.
  • For some time, I’ve been concerned about unrealistic expectations for growth in consumer demand, given the deleveraging overhang and unemployment.
  • Colorado’s major wealth creation industry – mineral extraction – continues to be hobbled by policy, yet Wyoming is projecting a healthy recovery in the months ahead- thanks to their policies regarding extractive minerals.
  • Southwest Colorado is no better than the Front Range.
  • The word that best describes the Western Slope economy is “lagging.” We’re used to growing faster than the state; recently we were losing jobs faster, although those declines have slowed.
  • There is a reasonable chance that Colorado will experience back-to-back-to-back job losses.
  • We are seeing more inquiries, which hopefully will bode well for our local economy.
  • We are seeing more inquiries, but they are not translating into sales – yet.
  • Efforts are being made to manipulate the housing and equity markets to create the illusion that the economy is better than it really is. The hope is that if consumers see their net worth rise, then they will start spending again. This makeshift effort does not eliminate the fundamental problems.

While these comments are not intended to be a representative sample of all Coloradans, they support the belief that the prospects for a solid recovery are not in the immediate future.

 

©Copyright 2011 by CBER.

Real GDP and Colorado Employment

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Over time, there has been a strong correlation between the values of Real Gross Domestic Product and Colorado employment. Logically, this makes sense because both are growth variables that follow similar paths.

Employment data for Colorado was first recorded in 1939. In 4 of the decades since, (50s, 60s, 70s, 90s) there has been a strong correlation between changes in the U.S. economy and Colorado employment. In three of the decades, the tie between the two variables was weaker. This can be explained by a variety of economic disruptions:
• 1940s – World War II and the post-war effect caused the two variables to be out of sync.
• 1980s – Colorado experienced regional issues including an oil and gas boom and bust, savings and loan crisis, overbuilt housing market, and net out-migration for 5 years.
• 2000s – The primary and secondary effects of two recessions hit Colorado harder than other regions of the country.

Since 1939, Colorado has experienced net job losses 8 times. On 5 of these 8 occasions, the U.S. recorded positive Real GDP growth.

Colorado experienced job losses 4 times during the past 8 years:
2002    42,700 jobs lost.
Real GDP = 1.8%.
2003    31,400 jobs lost.
Real GDP = 2.5%.
2009    106,300 jobs lost.
Real GDP = -2.6%
2010    35,000 jobs lost.
Real GDP = 2.6%.
There was positive expansion in output in 3 of the 4 years that job losses occurred.

Recent forecast updates suggest that the U.S. will experience below potential output growth through 2011. This raises the question, “Has the fragile state economy recovered to the point where it can add jobs in such a volatile economic environment?”

 

©Copyright 2011 by CBER.

Transportation Industry Hit Hard

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Previous blog discussions have focused on the relationship between the economy and two important components of Colorado’s transportation infrastructure, DIA  and RTD . The state’s transportation system also includes bridges, roadways, smaller airports, and mass transit systems – all falling under the oversight of the Colorado Department of Transportation (CDOT) .

In addition to infrastructure, Colorado has a very vibrant transportation industry, i.e. the companies that transport people and goods. Approximately 58,000 people, or 2.8% of the state’s workforce, are employed at 3,800 companies. They receive $2.6 billion in total wages, or 2.5% of the state’s total. Average annual wages are in the neighborhood of $41,000, slightly less than the overall state average. Some of the major types of companies include:

• 2,100 Truck transport companies
• 670 Transportation support companies
• 340 Couriers
• 250 Warehouse companies
• 200 Ground transport companies
• 140 Air transportation companies

About 60% of the transportation workforce is located in Adams and Denver counties, in close proximity to DIA, Front Range Airport, and the state’s major arteries  (I-25, I-70, Colorado I-76, and Colorado US 85).

Over the past two years about 10,000 jobs have been trimmed from the transportation workforce, a disproportionately high percentage of workers. Time will tell whether or not all of these positions will be recovered and the impact these job losses have on Colorado’s competitiveness.

 

 

©Copyright 2011 by CBER.