2011 Midyear Economic Summary: Remodeling the Economy

The nation's recovery appeared progressively more positive in early 2011 as the stock market stabilized, businesses reported higher profits, and consumer confidence improved. However, these positive signs belied fundamental economic weaknesses that became more apparent as commodity prices increased and the public debt crises unfolded both here and abroad.

The Metro Denver Economic Development Corporation's (Metro Denver EDC) Midyear Economic Forecast report includes national, state, and regional projections in key economic indicators such as employment, unemployment, retail sales, home sales/prices/construction, residential foreclosures, and commercial real estate (download report below).

Although the economy is in a fragile state, a return to recession is not inevitable. Confronting the nation's underlying vulnerabilities will be crucial to recovery:

• The public sector debt challenge. Total U.S. government debt today ($14.3 trillion) amounts to $46,450 for every citizen of the United States. Three decades ago, the per capita debt total was only $4,350. Many factors contributed to the higher federal debt level, including costly military engagements and an aging population that places an ever-greater burden on Social Security and Medicaid. Debt spiked further when the government spent billions in an arguably necessary effort to support the failing economy.
  
  Political disagreements aggravate these challenges, leaving households, businesses, and investors anxious. Uncertainty--the enemy of economic growth--seems likely to persist as most of the budget cuts promised under Congress' debt ceiling agreement have yet to be specifically identified or agreed upon.

• The private sector is not filling the gap in anticipation of lower government spending. With the economic role of government likely shrinking, a thriving private sector will prove indispensable for growth. Healthy corporate profits suggest many businesses accumulated wealth, but a profound lack of business confidence has kept employers from using new resources to hire. Results of the Manpower Employment Outlook Survey show, for example, that the share of U.S. employers planning no changes in staffing has been near or above 70 percent for 11 consecutive quarters.
  
  While the public sector has few quick fixes for its problems, even slightly more clarity on taxes, healthcare reform, banking regulations, and public finance would go a long way towards boosting business confidence. Policymakers also have a difficult challenge in implementing any further stimulus measures; to the extent businesses expect more government help, they may be less willing to act on their own.

• The household debt problem lingers. In today's economy, weak job and income growth likely replaced unconventional mortgages as the chief source of strain on homeowners. Because a home mortgage is the single greatest liability for many households, a healthier housing market--one where foreclosure inventory is largely absorbed--is essential for more stable personal finances. The pace of foreclosure filings is slowing, but the extent to which foreclosures have merely been delayed by fallout from the "robo-signing" crisis--the signing of documents that haven't been read--is a troubling uncertainty. 

"These challenges are difficult in themselves, but their interconnectedness makes them much harder to confront," explains Patty Silverstein, chief economist for the Metro Denver EDC. "The recent uncertainty in the economy suggests meaningful growth will not appear until these imbalances are resolved. Even though significant progress is dependent on the resolution of these vulnerabilities, it is important to note that Metro Denver is still maintaining elements of growth, albeit slow."

Despite the economic challenges facing Metro Denver on a local and national level, the region has sustained key assets that contribute to the area's overall health. Metro Denver's real estate market continues to perform better on several fronts compared to national levels. While home prices are declining very slightly in Metro Denver, they are expected to severely contract across the nation during the remainder of 2011. Apartment vacancies are down. Office, industrial, and retail vacancy rates are stabilizing and remain more promising than rates throughout much of the country. Employment growth is still expected to be too slow to reduce unemployment, but companies with a focus on health care and renewable energy are expected to add a respectable number of jobs this year.

 A full report including national conditions and statewide forecasts is available to Metro Denver EDC investors.