When the NBER officially announced the end of the Great Recession, the general reaction was, “Oh really?” It was clear to most that while the technical recession was over, the employment recession was not.
More recently, it has been announced that the employment recession has ended, although unemployment remains high. In the case of Colorado, the rate has reached record levels and is higher than the U.S. Again, the general reaction has been, “Oh really?”
Yes, the country is in expansion mode again. (The unemployment rate is dismal, but it is a lagging indicator.)
There are clearly risks to the continued expansion; however, sufficient momentum appears to be in place to sustain growth in the near-term. Arguments supporting the expansion follow…
Mathematically, the recovery has to occur. Over the past three years Colorado had one of the worst performing economies in the country. At some point it has to improve and that time is now. The global economy is likely to expand by 4 to 5% this year and U.S. output growth will increase by at least 2.5%. Given that environment and Colorado’s assets, simple mathematics point to sustained job growth.
The country has experienced 7 quarters of heavily-stimulated Real GDP growth (Q1 2011 data has not been released, but it will be positive). Annualized real GDP growth for this period is in the range of 2.8%. Typically, solid job growth occurs when the economy expands at that rate.
As the recession drew to a close, companies increased output per hour at the expense of labor. The rate of productivity gains peaked in 2009 and 2010. The addition of labor will most likely be necessary for companies to experience further output gains.
As a result, the addition of jobs has begun. Nationally, March 2011 marks the sixth consecutive month of job gains. On average, increases for December 2010-March 2011 averaged 158,000 – not great, but a drastic improvement.
The Colorado growth pattern is a little more sporadic. Beginning in February 2010 job gains have occurred in 9 of the past 13 months and 4 of the past six months. While the path to prosperity is a little bumpy, job gains this year will push total state employment back to the 2001 peak.
Last year, healthcare led the state in job creation. At the end of the first quarter, it is projected to be up about 8,800 workers from a year ago.
The good news is that the sector has been joined by tourism, the extractive industries, and the Professional Business Services (PBS) sector for job creation. At the end of the first quarter, the three sectors will add 25,000 to 30,000 net jobs.
Colorado is coming off a solid ski season which, in part, has helped push tourism employment higher by about 8,200 jobs. Increased traffic at DIA points to solid growth in the industry. High gas prices may work to Colorado’s benefit, if it incents the state’s regional market to enjoy less expensive drive vacations to the state this summer.
The extractive industries comprise a small, but important sector because of the severance taxes generated and jobs added in other industries. Year-over-year the sector is about 2,100 workers ahead of the same period last year. Sustained growth is likely to continue, particularly if the Niobrara oil patch proves to be a worthy producer.
The PBS sector has added about 8,200 workers over the past year. It is a mixed blessing that more than 40% of that increase is derived from Employment Services, i.e. temporary help. While these are typically not high paying jobs, gains in this subsector often point to expansion of other areas.
While the state may be at three years from recovering all the jobs lost in the Great Recession, we are finally on the path to that recovery. Sustainable growth, at some level, is on tap for Colorado.
©Copyright 2011 by CBER.