Government Sector is Top in Output and Jobs for Colorado

All industries are important to the economy for different reasons! Some may generate tax revenue for governments,  they may create jobs, or they might pay higher than average wages. Others may be lifestyle industries or they may be strong producers of output.  By comprehending how industries contribute to the economy, it is possible to better understand how they relate to each other and how they cause an economy to expand or contract.

There are distinct differences between the top 10 Colorado sectors for output and employment.  Government tops both lists. The sectors in green are common to both lists and are particularly important to the Colorado economy.

It is imperative to have public and private leaders who understand that industries are important to the economy for different reasons. They must recognize that some industries create jobs, others generate output, and some produce both.  In Colorado, the following sectors most effectively produce both: Health care; Retail trade; Professional, scientific, and technical; Manufacturing; and Finance and insurance.

2012 Colorado GDP

2012 CES Employment

  1. Government

  1. Government

  2. Real estate and rental and leasing

  2. Health care and social assistance

  3. Professional, scient., and tech..

  3. Accommodations and food services

  4. Information

  4. Retail trade

  5. Manufacturing

  5. Professional, scient., and tech.

  6. Finance and insurance

  6. Administrative and waste management

  7. Health care and social assistance

  7. Manufacturing

  8. Retail trade

  8. Construction

  9. Wholesale trade

  9. Finance and insurance

10. Mining

10. Other services

Source: BLS and BEA.

The top 10 output sectors account for 77.7% of total GDP and the top 10 job sectors account for 81.9% of total employment.

For additional analysis of Colorado employment and output go to the cber.co website.

©Copyright 2011 by CBER.

Agriculture Output Trended Downward 2009 to 2012 – Will There Be a Turn Around in 2013

Real Agriculture output peaked in 2009 for both Colorado and the U.S. and it has trended downward for the period 2009 to 2012.

Between 1997 and 2012, the Bureau of Economic Analysis statistics show:

  • The annualized rate of growth for U.S. Private Sector Real GDP (sum of all states) was 2.3% and the U.S. Agriculture sector increased annually at a rate of 1.7%.
  • The compound growth rate for Colorado Private Sector Real GDP was 3.1%. The Colorado Agriculture sector increased annually at a rate of 1.5%.

Although Colorado private sector output expanded at a significantly faster rate than the U.S.between 1997 and 2012, Agriculture output for the state grew at a slightly slower rate.

Between 2009 and 2012, the data shows:

  • The annualized rate of growth for U.S. Private Sector Real GDP (sum of all states) was 2.5% and the U.S. Agriculture sector decreased at an annualized rate of -6.9%.
  • The compound growth rate for Colorado Private Sector Real GDP was 2.2%. The Colorado Agriculture sector declined annually at a rate of 11.7%.

Farmers and ranchers have their fingers crossed that the downward trend will be reversed in 2013.

©Copyright 2011 by CBER.

Construction Output Declined for Eleven Years – Reversed in 2012

Real GDP for the Construction sector finally rebounded in 2012, after decreasing for eleven years, 2001 to 2011.

Between 1997 and 2012, the Bureau of Economic Analysis statistics show:

  • The annualized rate of growth for U.S. Private Sector Real GDP (sum of all states) was 2.3% and the U.S. Construction sector declined annually at a rate of -1.5%.
  • The compound growth rate for Colorado Private Sector Real GDP was 3.1%. The Colorado Construction sector declined annually at a rate of -2.4%.

For this period, the Colorado Construction sector was hit much harder than the U.S. In addition, the recovery was much slower for Colorado.

Between 2009 and 2012, the data shows:

  • The annualized rate of growth for U.S. Private Sector Real GDP (sum of all states) was 2.5% and the U.S. Construction sector increased at an annualized rate of 0.5%.
  • The compound growth rate for Colorado Private Sector Real GDP was 2.2%. The Colorado Construction sector declined annually at a rate of -1.4%.

Preliminary data suggests that 2013 Colorado Construction output will again be positive and that it will be stronger than the nation.


©Copyright 2011 by CBER.

Historical Colorado Output Growth Greater Than U.S.

The Bureau of Economic Analysis recently released 2011 State Gross Domestic Product (GDP) data by NAICS sector. Last year the top industries for the U.S. and Colorado were similar, but they were ranked in different order.

United States Gross Domestic Product 2011 (Sum of States)
• $14.981 trillion.
• Private sector is 87.4% of total GDP; Government is 12.6%.
• Manufacturing; Real Estate/Rental/Leasing; Finance/Insurance are 32.4% of total GDP.
• Professional/ Scientific/Technical; Health Care/Social Assistance, and Retail Trade are 21.6% of the total.
Colorado Gross Domestic Product 2011
• $264.308 billion.
• Private sector is 87.2% of total GDP; Government is 12.8%.
• Real Estate/Rental/Leasing; Professional/Scientific/Technical; and Information are 30.1% of total GDP.
• Manufacturing; Finance/Insurance; and Health Care/Social Assistance are 20.7% of the total.

A quick and dirty historical analysis shows that
• Colorado’s Real GDP (2.9%) grew at a faster rate than the U.S. Real GDP (2.1%) from 1997 to 2011 as well as from 2007 to 2011 (0.7% vs. 0.0%).
• Both the private and public sector real output for Colorado grew at a faster rate than the U.S from 1997 to 2011, as well as from 2007 to 2011. Colorado is listed first in the following comparisons.
o Private sector for 1997 to 2011  3.1% vs.2.2%.
o Private sector for 2007 to 2011  0.5% vs. -0.1%.
o Public sector for 2007 to 2011  1.1% vs. 0.8%
o Public sector for 2007 to 2011  2.2% vs. 0.6%.

For the period 1997 to 2011, four sectors had negative annualized growth in the U.S.: Construction, Utilities, Mining, Construction, and Administrative/Waste Management. Construction is the only sector that posted a decline in Colorado. Colorado outperformed the nation in all sectors except Transportation/Warehousing, Real Estate/Rental/Leasing, Administrative/Waste Management, and Arts/Entertainment/Recreation.

It is important to note that some of the sectors with strongest output growth were sectors that incurred declines in jobs over this period. The Manufacturing and Information sectors are two key examples).

For a detailed analysis of the state GDP, click here (Special Reports section) or go to cber.co.

©Copyright 2011 by CBER.

Conference Board Points to Slower Growth in 2012

Over the past 18 months, The Conference Board  has provided a depressing, but accurate assessment (unfortunately) of the performance of the U.S. and global economies. Overall TCB points to slower growth in the world economy in 3.2% in 2012 vs. 3.6% in 2011.

TCB divides countries into two groups – advanced and emerging. The U.S., Japan, and the E.U. 15 are the major players in the advanced group. The emerging group includes China, India, the remaining Asian countries, Latin American, Middle East, Africa, Russia and other CIS countries, and Central and Eastern Europe. The advanced economies account for 50.3% of global output and the emerging economies are responsible for the remainder, 49.7%.

In 2012 the advanced regions are expected to expand by 1.1%, whereas the emerging countries, will post a much stronger gain, 5.1%. TCB feels that parts of Europe are in a recession. The depth of that recession is likely to be determined by the magnitude of their debt crisis.

Japan is the only region that is showing an increase in the rate of output for 2012. As they recover from the tsunami and power plant tragedy that occurred last year, they will experience minimal growth of 0.7% in 2012. In 2011, their output posted a change of -0.5%.

About 22% of U.S. exports go to Europe. As well, Europe provides about half of the income earned abroad for U.S. multinational companies. A decrease in European demand could lower the rate of U.S. GDP growth and the strength of our economy. On the other hand opportunity exists for American companies exporting goods and services to the emerging economies.

Despite this dismal outlook, the U.S. posted job gains of 200,000 in December 2011. Time will tell if this increase is an anomaly, based on TCB’s dismal outlook or if we will look back to December and see it as a turnaround point for sustained U.S. growth at a higher rate.

 

©Copyright 2011 by CBER.

Conference Board and Moody’s Foretell Weak Growth in 2012

On Halloween, Moody’s released a frightfully optimistic forecast for 2012. It calls for no recession, Real GDP growth of 2.8%, an unemployment rate of 8.8% and the creation of 1.4 million jobs.

About 10 days later, The Conference Board (TCB countered with its latest take on where the U.S. economy is headed. In the spirit of the season, that update states that the economy is a real turkey.

TCB’s outlook follows:

Real GDP
2011  1.7%, up from 1.6% last month
2012 1.1%, down from 1.8% last month
2013 1.9%
TCB projects 0.7% growth in Q4 2011, while Moody’s foretells expansion in the range of 2.5%. TCB sees Q1 2012 growth of 0.5% followed by expansion of 1.2% in Q2 2012.

Consumer Spending
2011 2.1%, down from 2.2% last month
2012 1.9%, up from 1.5% last month
2013 1.6%
Consumers will remain cautious.

Capital Spending
2011 8.8%, up from 6.9% last month
2012 5.8%, up from 5.5% last month
2013 5.1%
The private sector will be less than robust in the months ahead.

Net Exports (billions)
2011-416.0, increased from -$398.3
2012 -430.8, increased from -$370.6
2013 -418.3.
There are many factors that could cause the trade deficit to increase such as higher prices for a barrel of oil and reduced demand for American goods and services in Europe.

Two things are certain. First, there is agreement that the outlook for 2012 is not robust! Second, “not robust” covers a wide range of economic conditions.

©Copyright 2011 by CBER.

Is a Recession on the Horizon?

The Wall Street Journal recently reported that The Conference Board has put the chance of a recession at 45% within the next 12 months. This is higher than other polls, which are more in the neighborhood of 1-in-3. TCB Chief Economist Bart van Ark’s projection is up from 1-in-3 in August and 1-in-6 in July. The WSJ noted, “For the last 23 years, a downturn has followed every time The Conference Board’s estimate topped 40 %.”

This news is significant because for the past year The Conference Board has unfortunately has more accurately projected the performance of the U.S. economy than such groups as Kiplinger’s, Moody’s, and the National Association of Business Economists. In some cases, these groups provided projections that pointed to a recovery.

The Conference Board’s outlook for the remainder of 2011 and 2012 is:

Real GDP
2011 1.6%
2012 1.8%
A slight improvement is on tap for the second half of 2012.

Consumer Spending
2011 2.1%
2012 1.9%
The consumer will not jumpstart the economy

Capital Spending
2011 6.9%
2012 5.5%
The private sector will be less than robust over the next 18 months.

Net Exports (billions)
2011 -$398.3
2012 -$370.6
Slight improvement in the trade deficit.

This is not a pretty picture!

 

©Copyright 2011 by CBER.

Contribution of Consumer to Real GDP Continues to Increase

There are an abundance of data sets that are useful in evaluating the performance of the U.S. economy. If only one could be used to measure overall performance it would be Real GDP, or the inflation adjusted output of the economy. The current Real GDP is approximately $13.4 trillion.

There are 4 components of the GDP. Mathematically speaking GDP= C+I+G+X.

The following analysis briefly looks at the change in the composition of output for each of these four components over the past two decades. As such, it is not intended to depict the total amount of output or changes in that output.

Consumers (C) are the primary drivers of the U.S. economy. As can be seen, the importance of the consumer has increased:
• Q1 1990 Personal consumption was 65.8% of Real GDP.
• Q1 2001 The go-go 1990s treated the consumer well – too well. Consumption rose to 69.4%.
• Q1 2003 Consumers were encouraged to keep spending as a way to pull the country out of the 2001 recession. Consumption rose to 70.2%. Creative financing helped sustain auto sales and allowed home owners to use their dwellings as ATMs. As a result consumers saved less, spent more, and  became overleveraged.
• Q1 2008 The Great Recession and the accompanying housing bust caused sharp declines in Investment (I). That decline increased the importance of government and consumer spending (70.3%).
• Q1 2011 The reliance on consumers continued as housing markets remained weak and government spending tapered off. Consumption rose to 71.1% of Real GDP.

Investment (I) includes business spending and the housing markets. The ups and downs of the contribution of investment follow:
• Q1 1990 Investment was 15.4% of Real GDP.
• Q1 1992 After the 1991 recession, investment dropped to 13.1%.
• Q1 2000 Investment rose during the go-go 1990s to 17.4%.
• Q1 2002 The 2001 recession pushed investment down to 15.5%.
• Q1 2006 With the recovery, business activity increased and investment rose to 17.7%.
• Q1 2009 Investment dropped to 11.7% as a result of the Great Recession and the fallout in the housing market.
• Q1 2011 With the recovery, a slight rebound has been seen. Investment has risen to 12.5% of Real GDP.

Government (G) spending was 20.3% of real GDP in Q1 1990. Shortly after, expenditures related to the first Iraq war and the 1991 recession temporarily drove the percentage up slightly. For the remainder of that decade, the strength in personal consumption and investment decreased the relative importance of government spending. Its percentage of real GDP declined to 17.5% in Q1 2000. Since then, it has risen steadily as a result of the wars in Iraq and Afghanistan and efforts to offset the effects of two recessions. Government spending was 20.2% of real GDP spending in Q1 2011.

Finally, net exports (X) have subtracted from Real GDP, i.e. there has been a trade deficit for over 20 years. In Q1 1990, Real GDP was -1.6% of Real GDP. As the trade deficit increased, net exports reached -5.9% of Real GDP in Q1 2006. In Q1 2011, net exports were -3.8% of Real GDP.

This zero sum analysis illustrates how declines in the relative importance of one GDP component require increases in the relative importance of other components. In short, this analysis shows the role of the consumer (C) in the recovery and the drag placed on the economy by the decline in the contribution of investment (I), particularly the housing market.

Looking to better times in the months ahead and an economy that has more balanced output.

©Copyright 2011 by CBER.

Manufacturing, Information, and Professional Business Services Drive Colorado Economy

All industries play different and important roles in our economy. Some pay high wages or create new jobs, while others provide services that generate tax revenue.

Economic developers welcome the creation of any job, but they emphasize the recruitment and retention of companies that have primary jobs. A primary job brings in money from outside the local community and often pays higher than average wages. As a result, these jobs create wealth and other local jobs.

In Colorado most primary jobs are in the Manufacturing, Information, and Professional Business Services sectors. They account for about 29% of total state private sector employment and 35% of the state’s private sector Real GDP. Colorado’s Advance Technology cluster is a subset of these three sectors.

In recent years, the Mining and Logging sector has employed about 1.5% of total private sector workers, yet it has accounted for about 6% of the state’s private sector output. The Real Estate and Finance group of sectors are also small from an employment perspective; however, they make a significant contribution, 23%, to the state’s private sector output.

Tourism and retail are important for different reasons. First, they touch the economies of all 64 counties.
Colorado’s scenic mountains provide the state with a distinctive competency, that cannot be replicated. Sales tax from the retail sector are a funding source for special districts and state and local governments. These sectors are important because they employ about 1 out of every 4 workers. Combined, they are responsible for about 11% of the state’s private sector output.

Finally, industries such as health care, personal services, utilities and the remaining sectors are important
because they add to the quality of life. These and the remaining sectors employ 35-40% of private sector workers, while being responsible for about 25% of private sector output.

The above analysis is based on 2009 data. The Bureau of Economic Analysis is scheduled to release its 2010 data within the month. Watch for more in-depth analysis at www.cber.co.

©Copyright 2011 by CBER.

The Conference Board – Increased Optimism for the Global Economy

The Conference Board continued its series of upward revisions in its most recent update of its global and U.S. economic forecasts. Key points from their update follow:

• The global economy is projected to grow 4.3% this year. This rate reflects a slight uptick supported by increasing momentum in the U.S. and other major economies. The outlook for Japan is for slower growth, as a result of their triple disaster. While these tragedies will have long-term impacts, the affect on their economy will be short-lived. The Chinese economy remains strong, but previous projections appear to have been overstated, hence a slight downward revision.

• Real Q1 GDP for the U.S. is projected to be 2.1%, driven down by lower capital spending and slower consumption. Output will increase by 2.5 to 3.0% for the remainder of the year, as employment increases and stronger consumption resumes. This will push Real GDP growth for 2011 to 2.6%. While this projection is particularly conservative, it is worth noting that the Conference Board has gradually bumped it upwards, by about a point, over the past six months. It is safe to say that we are now looking at the Great Recession in our rear view mirror.

• Headline inflation will surpass 5% in Q1, temporarily driven up by energy and food costs. Year-end CPI will be just under 3.0%.

• There are signs that producers are beginning to pass on price increases to consumers. It is not known whether these higher prices will hold.

• Companies will continue to benefit from productivity gains, as opposed to investing in labor. For the moment, this is good news for companies and bad news for workers. This relationship between labor and capital is likely to change in the months ahead.

• Sales growth is the top challenge for business leaders; followed by finding talent, cost optimization, and innovation.

• The triple disaster in Japan is likely to have a minimal and temporary impact on the U.S. economy. These tragic event may cause supply chain disruptions to the automobile industry, electronic equipment, or manufacturing industries that rely on semiconductors. The magnitude of the impact is based on exposure and location.

The Conference Board highlighted three assumptions that provide the foundation for  sustained growth in the U.S.

• Continued gains in U.S. employment of 200,000+ workers per month.

• The housing market is currently experiencing a double-dip “of sorts”. No further contractions will occur beyond current levels.

• Inflation will be contained.
If employment decreases, the housing market dips further or remains in the doldrums, or inflation is unchecked then all bets are off regarding the recovery.

This forecast update is particularly good news, as the Conference Board has been notably conservative in their assessment of  the strength of the recovery. While there are certainly risks associated with this forecast, it is encouraging to finally hear that the word momentum is being used in discussions about the national economy.

©Copyright 2011 by CBER.