Tag: Employment

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

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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?”

©Copyright 2011 by CBER.

Leeds School Annual Forecast Calls For Slowdown in Colorado Employment Growth

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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.

 

©Copyright 2011 by CBER.

Sectors Losing Jobs Have Higher Wages

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Through the first 8 months of the year there are 7 sectors of the economy that have lost a net total of 25,100 jobs, compared to the same period last year.

Construction                                     -8,800
Financial Activities                            -4,200
Federal Government                         -3,400
Information                                       -3,400
B-to-B (Not Employment Services)  -2,600
Local Government (Not K-12)         -1,600
K-12 Education                               -1,100

These sectors account for 33.3% of total employment. Average wages for this mix of workers is about $56,600 compared to average annual wages for all employees of about $47,900 (calculations based on 2010 QCEW data). In other words, the average wages for the sectors that are losing jobs is significantly greater than the overall state average, based on 2010 data.

The 2011 prognosis is that each of these sectors will show job losses for the year (2011) and that average annual wages for the group will remain well above the overall state average.

For a comprehensive review of the Colorado economy visit the CBER website.

©Copyright 2011 by CBER.

After 8 Months, 7 Sectors Show Job Gains

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Through the first 8 months of the year there are 7 sectors of the economy that have added a net total of 34,900 jobs, compared to the same period last year.

  • Tourism                                                +11,600
  • Private Education and Health Care +9,600
  • Professional and Scientific                +4,100
  • Extractive Industries                             +3,000
  • Wholesale Trade                                  +2,300
  • Employment Services                          +2,300
  • Higher Education                                  +1,900

These sectors account for 40.6% of total employment. Average wages for this mix of workers is about $43,600 per worker, compared to average annual wages for all workers of about $47,900 (calculations based on 2010 QCEW data). In other words, the average wages for the sectors that are adding jobs is less than the overall state average.

The 2011 prognosis is that each of these sectors will show job gains for the year (2011) and that average annual wages for the group will be less than the overall state average.  For a more comprehensive review of the Colorado economy visit the CBER website.

 

©Copyright 2011 by CBER.

10 Years After 9/11 – Creative Financing Fizzles

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In early 2003 a reporter posed the question, “Looking back, what did you miss in forecasting the 2001 recession?” In hindsight, there were two signals of greater problems.

1. Colorado construction output began to decline in 2001.
2. Employment in the Colorado Financial Activities Sector moved counter to total employment during the 2001 recession.

At that time, it was difficult to understand these trends because they were not fully developed. In the months prior to 9/11, the economy had slowed, but remained strong. Very few noticed the slowdown in construction output and those who did thought it to be nothing more than a bump in the road.

By mid-decade it became more apparent that the strength of the construction industry was waning. T-Rex was winding down and the only major activity was a smaller highway project in Colorado Springs, the Comanche Power Plant in Pueblo, and a mixture of school construction additions or improvements. In addition, housing permits, and valuation began to level off.

By 2007, housing construction began to slip and by 2008 it was clear that the industry was faced with more than a “bump in the road”. Between 2007 and 2009, 1-in-6 of the private sector jobs lost were either in construction or construction-related industries.

In hindsight, more economists and bank officials should have questioned why employees were being added in the Financial Activities Sector during a downturn. When 9/11 occurred, the economy came to a grinding halt for several days. Americans were encouraged to keep spending in hopes the country could consume its way out of the recession. At the time, that seemed to be the right thing to do.

Creative financing products (HELOCS, 0% financing, interest only loans, reverse mortgages, and others) were designed to stimulate consumption. Demand for these products increased in popularity because they allowed Americans to purchase whatever they wanted. To meet that demand, financial employment expanded between 2000 and 2007.

In 2007 a series of problems began to surface, the popularity of these products dropped off, and employment in the sector reversed trend – sharply. The industry experienced a complete melt-down – collapse of large financial institutions, the bailout of major banks by national governments, bank consolidations and closures, declines in consumer wealth, failure of top businesses, volatile equity markets, declining property values, foreclosures and evictions, and much lower interest rates.

In hindsight it is now easy to see that in 2002 there were signals that greater problems lay ahead. Given the circumstances, it is also easy to see why we looked past those warnings.

©Copyright 2011 by CBER.

U.S. Employment Situation – The Good, The Bad, The Ugly

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The recent labor report from the BLS brings back memories of the Clint Eastwood classic, “The Good, the Bad, and the Ugly.”

The Good – In February, March, and April an average of 220,000 jobs were added each month.
The Bad – In May the original estimate was that 54,000 jobs had been added. It was hoped that the downward trend would simply be a bump in the road.
The Ugly – The number of jobs created for May was revised downward to 25,000 with an addition of 18,000 in June.

These are not the kind of job gains that economic recoveries are built on. It is estimated that 100,000 to 125,000 jobs must be added each month to prevent unemployment from rising. If you account for the number of older workers who have remained in the workforce, that number might be bumped to 150,000 to 175,000. It is necessary to add between 200,000 and 225,000 jobs each month, on a sustained basis, to lower the unemployment rate.

The private sector posted gains of 57,000, while budget strapped governments reduced their payrolls by 39,000. The net is +18,000 employees.

The financial sector declined by 15,000 followed by construction at 9,000 workers. In addition, the temporary help services sector shed 12,000 workers. The sector, which is often considered a harbinger of broader hiring, declined for the third consecutive month.

On the positive side of the ledger the most significant sector gains were as follows:
• Leisure and hospitality 34,000 employees
• Health care and social assistance 17,400 employees
• Professional and business services 12,000 employees
• Wholesale trade   7,100 employees
• Manufacturing   6,000 employees
• Retail trade   5,200 employees
• Other services   5,000 employees
• Transportation and warehousing   3,600 employees.
Note: Not all sectors are included in the above overview.

While there is optimism for improved economic activity in the second half of the year, the reports cast doubts about job expectations. Employment growth appears to be nothing more than a necessary evil in the new economy that is driven by technology, globalization, a housing bust, and struggling financial markets.

Clint Eastwood, where are you when the country need you the most?

©Copyright 2011 by CBER.

Colorado Legislative Council – Momentum Building

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In late June the Colorado Legislative Council (CLC) released its quarterly update of the state economy Focus Colorado: Economic and Revenue Forecast. The report included mixed economic news – most of it good.

Nationally, there was reduced optimism compared to the CLC March forecast, with output growth revised downward from 3.2% to 2.6%. The Conference Board and Kiplinger have recorded downgrades of similar magnitude for real GDP. Other revisions include stronger employment growth and improved wage and salary projections.

The analysis of General Fund Appropriation budgets for FY 2010-11, FY 2011-12, and FY 2012-13 illustrates the fiscal challenges facing the state legislature. While funds from various sources are projected to increase, general fund appropriations will remain in the range of $7.2 to $7.3 billion for each of these periods.

On a positive note, CLC has upgraded its 2011 employment outlook from 0.7% to 1.1% or 24,400 jobs. They expect just under 40,000 jobs to be added in 2012. The forecast also points to slightly improved retail trade sales, income growth, and construction activity. On the down side slightly higher inflation is on tap.

The risks to continued growth remain significant. Consumer confidence remains low, constrained by concerns about debt, inflation, monetary policy, and weakness in the housing and construction markets. Despite these concerns, it is generally believed that these are factors that will prevent the economy from growing at a faster rate in the near term. Finally the chances of a recession are thought to be slim, less than 1-in-5.

At last, the majority of indicators are pointing to gradual improvement for the remainder of the year and solid job growth in 2012.

 

©Copyright 2011 by CBER.

Colorado’s Construction Problems Date Back to 2000

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Colorado’s construction industry has struggled for more than a decade!

Between 2007 and 2009 the construction and related industries accounted for the loss of 1-in-6 private sector jobs. Many believe that construction began its tumble in the middle of the decade. Employment and total valuation peaked in 2006 at 167,800 and $16.8 billion respectfully.

A closer look at Real GDP data shows that the downturn in Colorado’s construction sector actually began in 2000 and has been on a steep downhill path since. At that time the construction industry’s contribution to state output was $15.5 billion, or about 9% of the state’s private sector Real GDP (in 2005 chained dollars). Last year that contribution had dropped to $8.2 billion or about 4% of the private sector output total. From 1997 to 2010 the sector posted an annualized decline of 2.8%.

This decline in output is relevant for two reasons. First, the construction industry affects all of Colorado. More than half of the state’s counties have a higher than average concentration of construction workers. Second, a case can be made that the industry hasn’t bottomed out yet.

Unfortunately, about the only viable solution is time.

©Copyright 2011 by CBER.

Metro Counties a Drag on Colorado Economy

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Colorado added 6,200 net employees during the 10-year period (2001 to 2010). This is in sharp contrast to the previous 10 years (1991 to 2000) when the state gained almost 700,000 workers.

During the go-go 90s, payrolls in the Denver MSA increased by more than 355,000 followed by gains of about 95,000 in rural Colorado. Almost 93,000 jobs were added in El Paso County (Colorado Springs MSA) and another 57,000 in Boulder County (Boulder MSA).

At the risk of being repetitious… the state added only 6,200 workers between 2001 and 2010.

During this period the Denver MSA lost 20,000 workers, the Boulder MSA shed 4,900, and Colorado Springs payrolls decreased by 3,600. Employment in the state’s top three MSAs declined by 28,500 workers. The drop-off in Denver and Boulder began in 2002 and continued throughout the decade, whereas it started in 2007 for Colorado Springs. This was around the time Intel and other high-tech and semiconductor companies left the area.

At the risk of being repetitious… rural Colorado and the smaller MSAs were the only areas to add workers during the decade. Given the weakness in Colorado’s three major metro areas, it seems why the state is struggling to add jobs at a sustained level in 2011.

©Copyright 2011 by CBER.

Rural Employment Growth Rate Outpaces State MSAs

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After a promising start in 2000, employment in all parts of the state suffered from back-to-back recessions. This brief analysis shows that the rate of growth in the rural areas outpaced the metro areas.

Presently, the breakdown between the Metropolitan Statistical Areas (MSAs) and rural areas follows:

MSAs

  • 1.9 million workers.
  • 86.8% of total workers.
  • 17 counties.

Rural

  • .3 million workers.
  • 13.2% of total workers.
  • 47 counties.

Despite modest job gains after the first downturn, declines resulting from the second recession dropped statewide employment to 2001 levels.

Seasonality is more evident in rural areas because there is a small base of workers. As a result rural employment is more volatile.

Colorado employment is forecast to increase by 15,000 to 25,000 jobs this year, or in the neighborhood of 1.0%. The rate of growth for rural areas is expected to be slightly higher than in the rural areas.

©Copyright 2011 by CBER.