Economy Archives - Page 8 of 14 - Colorado-based Business and Economic Research

Occupy the Labor Market – Shields Foretells Growth in Northern Colorado

March 5, 2012March 5, 2012 horvath Leave a comment

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.

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

February 27, 2012February 27, 2012 horvath Leave a comment

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?”

The Mismatch of Skills between Company Needs and the Unemployed

February 21, 2012February 21, 2012 horvath Leave a comment

It is an understatement to say that there is a mismatch of skills between the unemployed and the needs of the companies looking for workers.

There are 2.1 million unemployed workers in occupations with unemployment rates below the natural rate (4.5% to 5.0%). Many of these occupations require a college degree. These occupations account for 31% of total U.S. workers.

There are 4.3 million unemployed workers in occupations with unemployment rates between the natural rate (4.5% to 5.0%) and below the U.S. average. These occupations account for 38% of total U.S. workers.

There are 6.0 million unemployed workers in occupations with unemployment rates above the U.S. average. These occupations account for 31% of total U.S. workers.

The bottom line is there are 10 million workers competing for replacement jobs in their occupations. As well, they are part of the pool who are competing for the handful of jobs in industries where they are not qualified.

It is clear why the unemployment rate has taken so long to return to the “natural rate” and it is easy to prepare the chart that illustrates the challenge.

What is the remedy?

Where are all the Startups? – Jobs Created Have Increased at a Declining Rate Since 1999

February 15, 2012February 15, 2012 horvath Leave a comment

Startups, entrepreneurs, and small businesses have been the focal point of discussions about how the U.S. and Colorado will fully recover from the 2007 recession. As part of this dialogue, there is a wealth of information and misinformation about the importance of these businesses to the economy.

So what do the numbers say?

The first step in analyzing the growth of startups is to define them. The second step is to find a data set that tracks changes based on that definition.

There are many ways to define an entrepreneurial business venture or a startup company that include:
• No formal structure.
• Type – Sole proprietorships or LLCs.
• Funding – Microenterprises.
• Size – A company with 1-4 employees.
• Age – A company less than 1 year in age with employees.

For purposes of this discussion, startups will be defined as firms less than one-year in age that have employees. By definition, sole proprietorships, microenterprises, or LLCs may be included if they meet these criteria. The Bureau of Labor Statistics produces data about startups defined in this manner. BLS reports the number of firms and employees based on a year ending on March 31. For example, 1994 data includes startups for the period April 1993 through March 1994.

A review of the data shows the number of jobs created at startups has increased at a declining rate since 1999 for both Colorado and the U.S.

In 1999, 94,100 jobs were created at Colorado startups. That number decreased every year through 2010. That year the new group of startups created only 47,100 jobs. A slight increase was posted in 2011.

A similar pattern occurred at the national level. In 1999, 4,703,000 employees worked at U.S. companies started that year. By 2010, the number of employees working at companies that began operations that year had fallen to 2,457,000. A slight increase was recorded in 2011.

Colorado has a track record for having world renowned startups. Clearly good things have come from Colorado entrepreneurs and startup companies; however, by this definition, Colorado may not be the entrepreneurial Mecca that we are led to believe.

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

Colorado Economic Forecast Challenges (Education, Industries, Clusters)

January 16, 2012January 16, 2012 horvath Leave a comment

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!

Cber.co Colorado Economic Forecast 2012 – Continued Improvement

December 23, 2011December 23, 2011 horvath Leave a comment

The economy is fragile and there are a number of variables that could alter any forecast. At the risk of sounding like a broken record, 2012 will look a lot like 2011. Colorado will experience below average growth for another year. Cber.co is projecting that we will see real GDP growth of 2.1% to 2.5% in 2012, with employment growth of 27,500 to 37,500 in Colorado. Go to Cber.co for the 2012 Colorado Economic Forecast.

The sectors of the economy can be evaluated in three groups: solid growth, limited growth, and volatile growth. A summary of these analyses for each of the groups follows.

Solid Growth Sectors (About 41% of total employment)

These sectors posted stronger growth in 2011 than any time in the past two decades. Growth will taper off slightly 2012 with the addition of at least 1,500 jobs in each of the following sectors.

Tourism
Private Education and Health Care
Professional and Scientific
Extractive Industries
Wholesale Trade
Employment Services
Higher Education

In total, these sectors will add 26,500 to 32,500 net jobs in 2012.

Limited Growth Sectors (about 26% of total employment)

In 2011 these sectors individually recorded minimal change in their number of employees. Significant change is unlikely in a slow economy.

Personal (Other) Services
Utilities
Retail Trade
Corporate Headquarters (MCE)
State (Not Higher Education)
Manufacturing
Transportation & Warehousing

Combined, these sectors will add 3,000 to 9,000 net jobs.

Volatile Growth Sectors (33% of total employment)
These sectors have either bottomed out, are near the bottom, or have turned the corner. Combined they will shed fewer jobs than in 2011.

Construction
Financial Activities
Information
Federal Government
B-to-B (Not Employment Services)
Local Government (Not K-12)
K-12 Education

Combined, there will be a change of -6,000 to 0 net jobs.

2012 Employment Outlook

Because the economy is still not on a solid foundation, it is reasonable to provide three scenarios for the summation of the above groups: optimistic, most likely, and pessimistic.

Optimistic Scenario
U.S. Real GDP 2.6%+
More than 37,500 Colorado Workers or More

Most Likely Scenario
U.S. Real GDP 2.1 % to 2.5%
+ 27,500 to 37,500 Colorado Workers

Pessimistic Scenario
U.S. Real GDP 1.6% to 2.0%
Less that 27,500 Colorado Workers

If probabilities were to be assigned to each of these scenarios, they would be as follows:
Most Likely 55%
Pessimistic 25%
Optimistic 20%.
At the time the forecast for 2012 was prepared, there was slightly more downside risk.

To access the Cber.co 2012 Colorado Economic Forecast click here.
©Copyright 2011 by CBER.

ISM Manufacturing Index Points to Continued Growth

December 18, 2011December 18, 2011 horvath Leave a comment

The Institute of Supply Management produces the Purchasing Managers Index (PMI), a measure of sentiment among manufacturing purchasing managers. The November PMI registered 52.7, an increase from 50.8 in October. November marks the 28th consecutive month of expansion for the PMI and the manufacturing sector.

Generally speaking, a reading above 50 indicates that the manufacturing economy is expanding while a reading below 50 points to a general contraction in manufacturing. A reading above 42.5 points to expansion in the overall economy. (November is the 30th month the PMI has been above 42.5).

Looking back over the past decade, manufacturing was hit hard during the 2001 recession and did not show sustained expansion until mid-2003. Sentiment remained strong for about a year then gradually tapered off with a severe decline in mid-2008. Despite 28 months of expansion, the PMI approached 50 in October.

Manufacturing is important because it is a source of primary jobs. In Colorado it is a particularly important part of the Boulder, Larimer, and Weld Counties. Each of the three areas has different manufacturing strengths.

Chance of Recession Recedes – The Conference Board

December 12, 2011December 12, 2011 horvath Leave a comment

There are signs the economy is improving. The unemployment rate is trending downward, retail sales are trending upward, and manufacturing has added jobs in 2012. For the 220,000+ unemployed Coloradans and those who aren’t captured in the UI numbers, it feels like the Great Recession never ended.

In recent months, The Conference Board (TChad demonstrated an ability to more accurately assess the economy than other groups. As a result, people took notice when they pushed the odds of another downturn up to 52% in October. A short-term historical look at TCB’s chance of recession statistics follows:
• July   17%
• August   33%
• September 45%
• October 52%
• November 32%
• December     9%

It is good news that the November and December percentages dropped off significantly. If a recession had occurred, it would have been short and shallow – barring a major shock. The economy has performed at a subpar level for so long and the recovery has been so weak that there would be little room for further deterioration in the event of another downturn.

Within the past month there has been reason to be more upbeat. Patience will continue to be a virtue as Coloradans weather the recovery.

Leeds School Annual Forecast Calls For Slowdown in Colorado Employment Growth

December 5, 2011December 5, 2011 horvath Leave a comment

The Leeds School of Business released its 47th annual business forecast, calling for the U.S. economy to grow at a faster rate and a modest slowdown in the growth rate of the state economy in 2012. The report projected a sharp increase in U.S. Real GDP growth, from 1.8% to 2.4%. Surprisingly that gain translates into an increase of only 23,000 workers in Colorado. This follows on the heels of job gains of 27,500 in 2011.

Job losses are projected for the Manufacturing, Information, and Financial Activities sector. After manufacturing gains in 2011, it is disappointing to see the projected return to negative growth. Evidently renewable energy, which sparked manufacturing growth in 2011, will either flatten or taper off in 2012. Consolidation in the other two sectors will drive further cutbacks.

According to the Leeds School, 2012 growth will be driven by the Health Care and Professional Business Services sectors. Smaller gains will occur in tourism and construction. It is encouraging to see the Construction sector on the positive side of the ledger again.

Although, the 2011 preliminary employment estimates will not be updated until March 2013; the Leeds estimate of 27,500 additional jobs is reasonable. In evaluating their projections for 2012, it is interesting to see how they fared with their 2011 forecast.

1. The Forum (UCCS) error -2,500
25,000 jobs (10/2/2010).

2. OSPB error -3,200
24,300 jobs (12/2010).

3. BBVA Compass error -5,500
22,000 jobs

4. (tie). Legislative Council error -7,500
19,900 jobs (12/2010).

4. (tie). BBER error -7,500
(15,000 to 24,999) (10/2010).

4. (tie) Jeff Thredgold’s Small Business Index error +7,500
(33,000+) (Autumn 2010).

7. CSU Economics Class error – 8,500
19,000 jobs (11/16/2010).

8. CU Colorado BEOF error -17,400
10,100 jobs (12/6/2010).

9. Demographer’s Office error -27,500
No growth (11/5/2010).

10. Moody’s/Dismal.com error +28,500
56,000 jobs (3/2011).

Like most forecasts, the Leeds projections have historically understated periods of growth and decline. If the Leeds pattern of error continues in 2012, then job gains above 30,000 might be more realistic. For additional information on forecast accuracy click here.

State Population Approaches 5.2 Million – State Demography Office

November 17, 2011November 17, 2011 horvath Leave a comment

On November 4, Cindy DeGroen, Projections Demographer, and Elizabeth Garner, State Demographer, presented their annual population update and key findings from the 2010 U.S. Census at the annual State Demographer‘s meeting. A sampling of the information from their reports follows.

In 2010, the state population topped 5 million. By 2012, the population will reach about 5.2 million, with about 72,300 births, 32,400 deaths, and net migration of 36,500. This represents a net gain of about 76,400 people.

The top five counties in population (July) are:
1 El Paso 627,096
2 Denver 605,722
3 Arapahoe 575,022
4 Jefferson 535,533
5 Adams 443,715

The five counties with the least population are:
60 Kiowa 1,399
61 Jackson 1,390
62 Hinsdale 847
63 (tie) Mineral 710
63 (tie) San Juan 710

The census showed that between 2000 and 2010 the state added a net of 727,935 people.
• Douglas County added 109,699
• El Paso County added 105,334
• Arapahoe County added 84,036
• Adams County added 77,746
• Weld County added 71,889
In total these five counties added 448,704 people, or about 62% of the population increase during this period.

From a municipal perspective, the following 5 cities posted the top gains:
• Colorado Springs 55,537
• Aurora 48,685
• Denver 45,522
• Thornton 36,388
• Castle Rock 28.007

The following 5 cities posted the largest losses:
• Wheat Ridge -2,747
• Englewood -1,472
• Lakewood -1,146
• Walsenburg -1,114
• Lamar -1,065

From this sampling of data it is clear to see that the state is evolving rapidly, as certain areas gain and lose population and workforce.