2010 Economic Forecast for Metro Denver

The Metro Denver EDC presented the 2010 Economic Forecast for Metro Denver at Vectra Bank’s 17th Annual Economic Forecast Breakfast. Chief Economist Patty Silverstein discussed key economic activity in 2009 and gave her outlook on the economy for the coming year. The event was sponsored by the Metro Denver EDC and the Denver Metro Chamber of Commerce.

According to Silverstein, one of the longest and deepest economic contractions in the nation’s history appears to have ended. The potential strength and length of the recovery, however, remains in question.

"The recession has left a swath of damage and challenges to be addressed in 2010," stated Silverstein. "Because consumers, businesses, and governments need time to rebalance their budgets and rebuild their resources, growth this year will be sluggish."

Metro Denver’s economy, however, fared better than many regions through the early months of recession. While employers in the seven-county region cut jobs at certain points in early 2008, the region also added net new jobs through the first three quarters of 2008.

While the region’s outlook for 2010 is far from rosy, positive rankings throughout 2009 suggest Metro Denver has maintained the solid fundamentals necessary to support growth once the nation’s economy recovers including:

• Denver ranks first among the nation’s most desirable places to live, according to a 2008 poll by the Pew Research Center. A 2009 poll by Harris Interactive showed Denver ranks with San Francisco as the nation’s second-favorite place to live. 
  
  
• Metro Denver won numerous accolades for its relatively stable housing markets in 2009. Forbes called Metro Denver one of 10 “Best Cities for a Housing Recovery” and the nation’s best metropolitan area in which to buy a home. Real estate correspondents with NBC’s “Today” show named Denver the U.S. city most ready for a housing rebound, and Builder magazine named Denver among five housing markets likely to recover quickly. BusinessWeek identified Boulder as the nation’s strongest housing market in 2009.
  
  
• Metro Denver cities are consistently recognized for their good quality of life, affordability, cultural facilities, and highly educated workforce. In 2009, Forbes named Boulder among the 10 “Best Cities for Recession Recovery,” and nearby Louisville ranked first on Money magazine’s “Best Places to Live” list. Also in 2009, Loveland ranked seventh on a list of 10 “Best Places to Live” by U.S. News & World Report.
  
  

Like Metro Denver’s economy, Colorado’s economic growth has frequently outpaced the national average, and the state’s advantage appeared to hold early in the recession. In fact, the nation experienced eight full months of job loss before sustained Colorado losses began in September 2008. The state’s employers then caught up quickly with their counterparts nationwide, and by the middle of 2009, job loss in Colorado matched – and subsequently exceeded – the pace of job loss reported nationwide.

Colorado’s economy has distinct challenges ahead, particularly as state and local fiscal imbalances grow. The state’s labor markets have also been impacted, and substantial job growth here is unlikely until the national economy stabilizes. Colorado’s economy – like the nation’s economy – will remain weak throughout 2010, but healthier growth should follow thanks to the state’s many advantages for businesses and residents.

The Metro Denver EDC’s 2010 Economic Forecast for Metro Denver reviews the events of 2009 and examines likely trends for the current year. The forecast begins at the national level and then discusses the economy in Colorado and Metro Denver, which is the region comprised of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties.

Notable data from this year’s report include:

National Economy

• A late-2009 increase in U.S. gross domestic product (GDP) suggests one of the deepest and longest recessions in the nation’s history has ended. While the improvement is a good sign, the GDP data also suggest the economic recovery is leaning heavily on government incentives and other forms of stimulus. This dependence was partly expected, but business and household demand will need to revive before a recovery is truly sustainable.
  
  
• Because much of household spending relies on compensation from work, the recession’s massive damage to labor markets is a major obstacle to recovery. Between the start of recession and the end of 2009, U.S. employers cut roughly 7.2 million jobs, or more than 90 percent of the jobs gained following the 2001 downturn. Even if U.S. employers immediately began hiring at the fastest rate reported before recession, the economy would need nearly three years to recover all lost jobs. Job growth may not begin until the second half of 2010.
  
  
• Given the extent of the nation’s job loss, the unemployment rate is likely to remain high for some time. The nationwide rate has already reached the psychological tipping point of 10 percent and will likely remain there until the second half of the year. The overall average rate for the year (9.9 percent) will rival unemployment rates reported in the early 1980s.
  
  
• The dramatic fall in energy prices from 2008 highs kept significant downward pressure on inflation in 2009, as did reduced consumer demand. Energy prices are rising again, and the massive amount of liquidity placed in the financial system has the potential to fan inflation as conditions improve. Excess capacity in the nation’s economy seems likely to offset these pressures, however. Inflation will rise in 2010 but will remain below levels that are consistent with healthy growth.
  
  
• Citing excess capacity in the nation’s economy, the Federal Reserve will likely keep interest rates at historic lows for much of 2010. The central bank will focus on ending the asset purchase and liquidity programs it used to combat the credit crisis. 
  
  
• Wage and income growth is not likely until labor market slack is considerably reduced, so the outlook for consumer spending remains subdued. While government spending will offset some of the private sector’s weakness, the public sector’s ability to spend in the face of already massive deficits is increasingly in question.
  
  
• On the positive side, battered real estate markets have finally reached bottom in many areas, stock markets have revived, and the international economy is showing signs of life. Even more positive trends in these areas are likely as 2010 continues.
  
  

Colorado Economy

• Colorado’s economy largely avoided the early challenges of recession and added jobs – on net – through the first three quarters of 2008. The state’s job losses began in the fourth quarter, however, and caught up quickly to the rapid job cuts reported nationwide. By the middle of 2009, Colorado’s rate of job loss exceeded the national average. The state’s job losses subsequently slowed but remained near historic highs, and final employment data will show the state lost approximately 100,000 jobs throughout the recession. Statistics for 2010 will likely show additional – but minor – job losses.
  
  
• Colorado’s unemployment rate remained below the national rate during the recession but will nonetheless rise in 2010 to rates above eight percent.
  
  
• Colorado residents have higher-than-average incomes, but weak job markets and significant wealth destruction have noticeably affected their income growth and spending. Measures of nationwide and Colorado personal income both declined over-the-year for the first three quarters of 2009. For both areas, the consecutive quarterly decline was unprecedented in records dating back to 1969.
  
  
• Falling income growth and economic uncertainty made for lower Colorado retail sales. Sales in some months of 2009 fell as much as 19 percent on an over-the-year basis. Households need time to repair significantly damaged finances, so retail sales growth in 2010 will be very slight.
  
  
• Colorado exports should increase in 2010 thanks to a weaker U.S. dollar and improvements in the international economy. The state’s export growth will fall below the national average, however, because Colorado exports still rely on computers and electronics. In many cases, production for these goods continues to shift overseas.
  
  

Metro Denver Economy

• Like the Colorado economy, Metro Denver’s economy largely escaped the early effects of the U.S. recession. The region’s economy abruptly shifted, however, in the fourth quarter of 2008. The pace of Metro Denver job loss approached and exceeded the national rate throughout 2009.
  
  
• Several new headquarters operations in renewable energy, healthcare, and other sectors are an advantage for Metro Denver in the recovery. These businesses may not begin major construction projects or add large numbers of jobs until the national recovery is more certain, but they will still form a solid base for growth after 2010.
  
  
• Because job growth in Metro Denver – like job growth in Colorado and the nation as a whole – is expected to be slow in 2010, the region’s unemployment rate will remain stubbornly high. The expected average of 8.2 percent would be the highest reported for the region since the 1980s.
  
  
• While Metro Denver has experienced a similar degree of job loss as other major metro areas, the region has a distinct advantage in its healthier-than-average housing market. Metro Denver’s unsold inventory continues to contract, and home sales should rise in 2010. Metro Denver is also among the first metro areas to report stabilizing home prices.
  
  
• Foreclosure will still be a challenge in Metro Denver this year, particularly as high unemployment leaves more homeowners in distress. Even so, better home sales and prices plus more foreclosure programs should still make for delinquency levels that are lower than those of the past few years.
  
  
• Weakness in commercial real estate is one of the larger challenges facing Metro Denver’s economy this year. Construction in the region’s office, retail, and industrial markets all but halted in 2009 as business demand for space declined and credit evaporated. Credit markets have improved only slightly, and job growth-driven demand for space will not return for several years. While Metro Denver’s commercial real estate markets are in many ways healthier than markets nationwide, lease and vacancy rates could need several years to recover.
  
  
• Metro Denver continues to attract businesses with the potential to support growth in the long term. The fact that businesses have moved to the region even during recession itself speaks to the region’s competitive advantages. While the recovery may prove underwhelming in 2010, the rebuilding, restructuring, and repair that will happen throughout the year will set the stage for more stable growth in the long term.
  
  

A full report is available to Metro Denver EDC investors.