Tag: Housing prices

The Strengths of the National Economy will Impact Colorado

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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.

Colorado Job Growth Continues to be Solid in April

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BLS recently released April wage and salary employment data for Colorado. The job growth is softer than expected given the strength of the U.S. jobs numbers, projected improvement in the growth of the economy (GDP), and the outlook of purchasing managers as measured by the ISM manufacturing and non-manufacturing indices. Given the strength of the U.S. employment data, it seems reasonable for the state to be ahead of last year by 70,000 to 75,000 jobs, even with the slight decreases in the state oil and gas industry.

job growth

In April there were 34,400 jobs (NSA) in the Mining and Logging Sector. This is down about 1,300 jobs from December, 2014 but about 1,800 jobs above the April 2014 total. The sector had record employment this past December.

Looking beyond the oil and gas industries we see that about two-thirds of the job growth this year has been in Health Care; Accommodations and Food Services; Construction; Professional, Scientific, and Technical Services (PST); and Manufacturing.

Approximately 21% of all jobs added were in Leisure and Hospitality. The tourism industry is important to all 64 counties in the state. Colorado had a strong ski season and is poised to have a strong summer season.

About 10% of total jobs added were in the PST, Manufacturing, and Information sectors. These sectors are the source of primary and advanced technology jobs. Primary jobs attract wealth from outside the state that is spent locally, they export a significant portion of their goods and services, and they often pay wages that are much greater than the state average.

Probably the hottest topic on the economic front has been the price of housing and rentals. The Case Shiller Home Price Index for Denver indicates that home prices increased by 10.0% over the past year and 1.4% on a month-over-month basis. Rentals have risen at slightly lower rates.

The comparative strength of the Colorado economy over the past five years has caused labor shortages in key occupations, i.e. it is necessary to attract talent from outside Colorado. Out-of -state workers from some parts of the country will experience sticker shock when they look at home prices in the metro area.

On a positive note, increased appreciation in home prices increases the “paper wealth” of individuals. This will cause home owners and landlords to remain confident in the economy and willing to spend money. The increase in prices, and ultimately property taxes, is a two-edged sword. Property owners don’t like the increase, but schools and local governments will see an increase in funding.

At the moment the increase in housing prices does not appear to have deterred job growth. Stay tuned – that may change! It will continue to be an interesting year for the Colorado economy.

Colorado Jobs and Economy Remain Strong

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On December 20th the BLS will provide their final 2014 Colorado jobs report.

Given the strength of the U.S. job growth reported earlier this month (321,000 jobs added), it is reasonable to think there will be solid job growth for November. While the economy has had its ups and downs, job growth remains solid, and is trending upwards.

The upcoming press release is somewhat irrelevant because the BLS will release the 2014 benchmark revisions in early March of 2015. That data is expected to show that the number of Colorado jobs increased by about 73,000, or 3.1%, during 2014.

The BLS began producing state employment data in 1939. The Job growth of 73,000 jobs in 2014 will be the tenth best year in terms of absolute job growth (the number of jobs added). On the other hand, 2014 will be the 38th best year in terms of relative job growth (percentage of job growth).

This year marks the only time that Colorado jobs have increased at an accelerating rate for four consecutive years. Between 2011 and 2014, Colorado has added about 231,000 workers (36,300 jobs in 2011; 54,400 jobs in 2012; 68,100 jobs in 2013; and 73,000 jobs in 2014.)

Looking ahead to 2015:
• The price of oil has declined precipitously because supply exceeds demand. As a result the price for a gallon of gasoline has dropped well below $3.00 per gallon. To date, the short-term impact of lower gas prices has been minimal. If prices remain low, Colorado’s frequent fuelers will realize savings of about $500 to $600 next in 2015. Because wage growth has been weak over the past four years, most people will not use the savings for discretionary purposes. Rather they will pay for rent, food, medical costs, and other necessary expenses that have risen at a rate faster than their wages.
• In the short-term (first half of 2015) lower oil prices may not have a significant impact on production and the number of workers in Colorado’s extractive industries. If prices are suppressed for an extended period, then production will fall. Initially, contractors and engineers will be laid off and production workers will be furloughed. Eventually smaller companies and suppliers will be impacted. The extractive industries have a comparatively small direct workforce; however, they indirectly touch many industries. They have a much bigger role in the Colorado economy than most people realize.
• A slowdown in the economies of China, Russia, and parts of the European Union may impact Colorado companies that export products and services globally.
• Wage growth has been extremely weak, particularly given the decline in the rate of unemployment this year. Although the unemployment rate is below 4.5% (the natural rate of unemployment), upward wage pressure has been felt in only a few industries, such as construction and finance.
• Retail sales have remained solid because of increased employment and in-migration. Stronger wage growth is needed to support significant growth in retail sales.
• The downward trend in the unemployment rate is a mixed blessing. It is great that more people have jobs, but labor shortages will occur  in more industries during 2015 as the supply of trained workers is reduced.
• Health care costs will continue to be an issue in 2015. Participants in the Connect for Health Colorado program will not see minimal increases in their 2015 premiums. Unfortunately, the subsidies were reduced, which will cause costs for insurance to increase significantly for many families.
• Colorado’s housing prices continue to rise, which is good news for existing home owners. It is not such good news for renters and people moving to the state.

Despite these headwinds, there are plenty of reasons to be optimistic about the growth in the number of Colorado jobs and the overall economy in 2015.

Are We Better Off Than We Were Four Years Ago? – Colorado

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This election season has featured an abundance of discussion about where the state is better off now than we were four years ago. In some cases, we are better off today and in other cases we are not.  The following data provides a snapshot of key metrics that fit into both categories.

Colorado Population
People like to visit and live in Colorado. Continued population growth is projected on a long-term basis.
• Although Net Migration has slowed, Colorado’s population continues to grow at a steady pace.
Colorado Employment and Unemployment
Increased population growth points to long-term job gains and lower employment.
• During the 69 months between January 2007 and September 2012 Colorado only gained jobs in 34 months (seasonally adjusted data).
• In 2012, Colorado employment is well below employment of 2007 and 2008, but it is trending upwards.
• In 2012, jobs are being added at a faster rate than they were in 2008, but not 2007.
• The number of unemployed workers is more than twice as much in 2012 as it was in 2007. It is also greater than 2008.
• The unemployment rate in 2012 is twice the 2007 rate and much higher than in 2008.
• In 2012, the unemployment rate and the number of unemployed workers is trending downward, whereas, it was trending upward in 2008.

Colorado Employment by Sector
Segments of the economy are healthier than they were in 2008.
• Projected annual state employment for 2012 will be about 56,900 less than the total for 2008. The following sectors have greater 2012 employment than 2008: Private Education and Health Care, Higher Education, Tourism, K-12 Education, Corporate Headquarters (MCE), Federal Government, Employment Services, State Government, Extractive Industries, and Professional and Scientific and Technical Services.
Colorado Job Creation
Improved firm and job creation is necessary if the economy is to recover at a faster rate.
• Gross job losses and job gains for 2011 are less than 2008. Improvement in net job gains is more a result of decreased layoffs than actual job creation.

Income and Wages
Recent wage and income data is mixed.
• Per Capita Personal Income – The 2011 average is slightly below the value for 2008.
• Colorado Median Household Income – The 2011 median is below the value for 2008.
• Average Annual Wages – The 2011 average is above the value for 2008.

Colorado Output
Increased employment and wages will point to increased demand for goods and services. This in turn will push output upwards.
• Colorado Real GDP was greater than the U.S. for 2007 to 2011.
• The following sectors have shown steady growth since 1997 and 2011 output is greater than 2007 and 2008: Retail Trade; Professional, Scientific, and Technical Services; Health Care; Finance and Insurance; and Information.
• Real output for the Construction sector was greater in 2007 and 2008 than 2011 for both Colorado and the U.S.

Colorado and Inflation
Overall inflation has been minimal; however, inflation in key areas has been noticeable.
• Overall inflation has been minimal since the beginning of the Great Recession. Apparel and Housing are the only sectors that have grown at a lower rate than All Items for Coloradans.
Construction and Housing
There is improvement in the Construction and Housing markets.
• The number of permits in 2012 is greater than 2008, although they are well below the levels shown in the 2000s.  Most importantly, permits are slowly trending upwards.
• 2012 Colorado housing prices are approaching 2008 levels.
• Home ownership rates in 2011 are below the rates in 2008. More importantly, they are trending downwards.

General Fund and Retail Trade Sales
Gross General Fund Revenue is trending upwards because of stronger job gains (income taxes) and retail trade sales (sales taxes).
• Retail Sales are improving. Projected Sales Tax Revenue for the fiscal year ending June 2013 will exceed revenue for FYE 2008 (not adjusted for inflation). This tax accounts for about one-fourth of Gross General Fund Revenue.
• Projected Net Individual Income Tax for the fiscal year ending June 2012 will exceed FYE 2008 (not adjusted for inflation). This tax accounts for about two-thirds of Gross General Fund Revenue.
• Projected General Fund Revenue for the fiscal year ending June 2012 will match FYE 2008 (not adjusted for inflation).

For more detailed analysis of the state of the economy compared to four years ago, visit https://cber.co or click here.

 

©Copyright 2011 by CBER.

10 Years After 9/11 – Housing Prices

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Can you say housing bubble?

During the Lost Decade Colorado residents felt like Ann Hodges, the only person on record to be hit by a meteorite. While the rest of the nation was enjoying steep appreciation in their housing prices, Coloradans only saw modest gains.

Then their fortunes turned.

When the housing bubble burst in 2006, Colorado prices either remained stable or recorded a modest decline. Comparatively speaking, that is good news. Residents in many other states saw precipitous declines.

The downturn in prices meant that at one point, at least 25% of U.S. homeowners, or more than 11 million people, were underwater on their loans. They owed more than the value of their homes.

This problem can be attributed to the creative financing tools that allowed homeowners to treat their dwellings as “cash registers” during times of steep appreciation. They took on extra debt expecting the steep appreciation to continue. When prices plunged, the additional debt came back to haunt them.

Lower housing prices has theoretically made it possible for first-time buyers, those wanting to upgrade, or those previously shut out of the market to purchase a home. But, there is a catch. Underwater owners have difficulty refinancing their homes and those who qualify for refinancing may choose not to sell at a loss.

The combination of underwater owners and the high number of foreclosures has created chaos for the construction market.

It is not a pretty situation; however, in many cases, the lack of steep appreciation in the first part of the decade has worked to the advantage of Coloradans.

©Copyright 2011 by CBER.

10 Years After 9/11 – Construction

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Colorado construction employment declined from mid-2001 through 2004, in part due to 9/11 and the recession. It rebounded between 2005 and 2008, but plunged in 2008. Employment in 2011 dropped back to levels last seen in 1995.

State single family building permits peaked in 2004 at 40,753 and plunged to 7,231 in 2009. A slight recovery was seen in 2010 and 2011.

Total construction valuation for Colorado peaked at $16.8 billion in 2006 and fell to $6.2 billion in 2010.

Colorado’s Construction Sector Real GDP peaked in 2000. It declined at an annualized rate of -5.9% between 2000 and 2010.

In short, the Construction Sector got hammered.

For additional information, see the reports The Colorado Economy Ten Years After September 11, 2001 and Colorado’s Construction Industry – Impact Beyond the Hammers and Nails at cber.co.

©Copyright 2011 by CBER.

Economy Struggles as Debt Ceiling Debate Nears “Deadline”

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As the August 2 “deadline” for the debt ceiling approaches there is an abundance of articles, discussions, blogs, and editorials discussing the future of the economy. Most are dismal.

Housing – In 50 words or less, the housing market is dismal. Gary Shilling, Forbes economist, says it will drop another 20% next year. While that may not be the case in many locations, it is unlikely that Colorado will see appreciation in housing prices next year. Time, not stimulus, is the solution to the problem. Unfortunately this points to continued budget woes for schools, special districts, and local governments.

The 2012 Elections – Part of the posturing related to the debt ceiling debate has been centered around the creation of sound bites for the 2012 election. Get your wading boots on for a campaign season that will make previous ones look like a walk in the park. The advertisements and campaign speeches for the upcoming elections are likely to leave the electorate with even greater angst for our elected officials.

Investment Options are LImited – QE2 propped up the stock market for a few months, and temporarily raised consumer confidence. For the near-term, interest rates are miniscule, return on investments are low, commodity prices have fallen off. Did we mention that the housing market has tanked? There are few investment options for consumers.

Fuel Prices, One Example of Inflation – Fed Chairman Bernanke was correct when he said that the price of oil would drop. He forgot to mention that it would occur at summer’s end and it would be accompanied by a decline in the price of other commodities. The price for a tank of gas remains well above $60. Gasoline prices are just one example of inflation that will constrain consumer confidence in the months ahead.

China – The Chinese economy remains strong, but it is slowing. As their consumption decreases, there will be a corresponding decline in the demand for American goods. Like it or not, we are in a global economy and the expansion of U.S. output hinges on foreign consumption.

Unemployment Rate – In Colorado the rate has declined, which is good news. Unfortunately, there are about 230,000 people who are still not working. This is a double whammy. They are receiving financial assistance to reduce their chances of becoming destitute and they have reduced their consumption. As well, older workers are remaining in the workforce because of uncertainty about such federal assistance programs as Medicare and Social Security. This has reduced job opportunities for younger workers, which has multiple negative implications on future economic growth.

At times the dismal news makes it sound like the world is coming to an end tomorrow, fortunately that is not the case. As bad as the economy may seem, the country remains in a growth mode (barely). Despite our current economic and political challenges, the U.S. and Colorado continue to be a great place to live, work, and play.

©Copyright 2011 by CBER.