Tag: Lost Decade

10 Years After 9/11 – Summary of Impacts on Colorado

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This is the final post summarizing the way the economy has performed in the 10 years after 9/11. The series of posts began in early August and has included a review of tourism; construction, housing, and financial activities; retail sales and personal services; high tech and the military.

Tourism

• From an employment perspective, tourism (accommodations and food services) has expanded in Colorado since 2001. Competitiveness within the industry has increased, as evidenced by the flat growth in output.

• In Colorado, the airline industry was “restructured” after 9/11.

• The impact of 9/11 was short term. These declines may have been offset by gains in emerging industries,
such as teleconferencing and other means of communications.

Construction, Housing, and Financial Activities

• Construction, housing (prices and foreclosures), and finance are all interrelated. A portion of today’s
problems can be tied to 9/11 and the 2001 recession. There was a mindset that the country could “spend” its way back to prosperity. That mindset created problems when overextended consumers lost their jobs or saw declines in the values of their houses.

• Construction output peaked in 2000 and has dropped-off since. From an employment standpoint, there was a slight decline during the 2001 recession. A much more severe drop-off began in 2008.

• Creative financing allowed financial employment to grow throughout the 2001 recession. Some of the
products that spurred that growth were problematic in the second half of the decade. In turn, layoffs in the
financial sector began in 2007 and have continued since. These declines are a function of lack of activity,
consolidation, automation, bank failures.

• Year-end equity market values are about the same in 2010 and 2000.

Retail Sales and Personal Services

• Sales of retail goods and personal services has become more competitive during the past decade, yet
employment has remained relatively flat. Increased savings in recent years may be an indicator that consumers learned from the 2001 and 2008 recessions that they have limited resources that can be allocated to the consumption of goods and services.

High Tech (Manufacturing; Information; and Professional Technical Services)

• Employment has dropped significantly as a result of increased efficiencies, outsourcing, and offshoring. At
the same time output has risen dramatically. MIPTS is the driver of the state economy. 9/11 played a role in the adoption of high technology goods and services (surveillance, security, teleconferencing, etc.)

Military
• The U.S. military has increased their dependence on Fort Carson since 9/11.The movement of troops in and out of the base have had a noticeable impact on the El Paso County economy.

The “Lost Decade” was a turning point in the structure of the U.S. and Colorado economies. While 9/11 did not cause this transformation, it played a role in accelerating the change that occurred in some industries.

For additional information, see The Colorado Economy Ten Years After September 11, 2001 at cber.co in the Special Reports section.

©Copyright 2011 by CBER.

Colorado Legislative Council – State Economic Update December 2010

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The recovery of the Colorado economy continues to lag that of the nation, as evidenced in the December 20 release of Focus Colorado: Economic and Revenue Forecast , a quarterly publication of the Colorado Legislative Council . Many of the key economic indicators for the nation were revised upward while there were mixed results in the Colorado update.

The following discussion highlights revisions to key 2011 Colorado indicators:
• With Real GDP growth of 2.9% (U.S.),state employment will increase by 0.9%, slightly less than the September projection. This equates to 19,900 jobs.
• The most notable change is an increase in the 2011 unemployment rate. It was revised upward from 7.6% to 8.4% (Many economists in the state expect this rate to exceed 9.0% and possibly push past the national rate at some point this year).
• With more people on the payrolls, personal income is expected to post a modest increase of 3.1%.
• On the other hand Wage and Salary income will record a meager increase of 1.4%.
• Despite the increase in wages and personal income, projections for retail sales growth was revised downward from 3.1% to 2.5% (It should be noted that this rate of growth does not reflect changes associated with the tax reduction plan passed by Congress).
• On a positive note, the number of home permits was bumped up from 11,200 to 17,200. Continued subpar construction growth is projected beyond 2011 despite population increases in the range of 90,000 to 100,000 people per year.
• Finally, the projection for CPI growth remained at 1.9% for 2011; however, it is expected to ramp up by at least a point in 2012.

Positive factors not mentioned above include:
• Permitting in the oil and gas industry turned upward at the end of 2009 and have continued in that direction.
• While there is optimism within the industry about Colorado’s housing market, it is not yet reflected in the data. If it is any consolation, home prices are faring better in Denver than many other parts of the country.
• Foreclosures remain high, but they are on a downward path.

On the other side of the equation:
• Colorado’s financial sector is plagued with troubled mortgages.
• To illustrate that point, 27% of Colorado insured banks were not profitable at the end of September 2010. This compares to 20% nationwide.
• The state’s lending institutions have high exposure to troubled commercial real estate than other banks in most other states.

While there is good news in the most recent update, it should not be forgotten that the Lost Decade concluded with state employment at a level below the peak in 2001. Despite employment gains this year, it is likely that June 2001 peak employment will be reached again in 2012.

 

©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.