September 2009
Consumer confidence vs. spending to complicate quick recovery
Many analysts agree that recovery from the recession in the coming quarters will be slower than recoveries from previous downturns, partly because consumer spending seems unlikely to rebound quickly, according to data collected by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for September 2009.
Improvement in the Mountain Region Consumer Confidence Index suggests local consumers have an increasingly positive economic outlook, although survey respondents are still voicing concern over uncertain job prospects and less-than-stellar income growth.
“Consumers are largely anticipating better conditions, but that optimism has yet to change their willingness to spend,” stated Patty Silverstein, chief economist for the Metro Denver EDC and president of Development Research Partners. “This will hold recovery back as consumer spending drives 70 percent of U.S. economic activity.”
Consumers’ ability to spend is also in question as the economy recovers, because consumer wealth and access to credit has declined significantly. These factors are certainly weighing on Metro Denver retail sales, which were down more than 13 percent year-to-date through May.
Metro Denver employers cut 9,400 jobs between June and July, but seasonally adjusted data suggest the loss was smaller than expected for this time of year. Year-to-date growth rates for each of the 11 Metro Denver industry supersectors except education, health services, and government remained negative in July, with the largest percentage declines in natural resources and construction, manufacturing, and professional and business services. Still, recent monthly increases in professional and business services employment could indicate a stabilizing job market. The industry includes temporary and contract worker employment, and an increase in these jobs tends to foretell a better labor market.
Metro Denver’s unemployment rate was 7.8 percent in both June and July. Despite recent increases, Metro Denver’s current unemployment rate is roughly two percentage points lower than the nationwide rate.
Filings for unemployment insurance in Metro Denver slowed between June and July. An average of 2,198 claimants filed for benefits each week in July, compared to an average of 2,469 claimants each week in June.
The decline in residential real estate seems to be slowing. According to the National Association of Realtors (NAR), a 7.2 percent increase in U.S. existing home sales between June and July was the largest gain reported in records dating back to 1999.
Metro Denver existing home sales increased more than six percent between June and July but remained 13.3 percent below sales from July 2008. The region’s average home prices – while still below prior year’s levels – are beginning to firm as home sales accelerate.
Looking ahead, consumer behavior indicators and other economic drivers are likely to show mixed signals. Slow improvement from one month or quarter to the next will likely still result in weakened trends from prior years, at least until positive labor market prospects and improved financial markets give consumers and businesses the resources they need for growth.
Economic indicators for Metro Denver are currently showing this mixed behavior. Eleven of the 18 indicators moved in a positive direction for the month, while only three indicators moved in a positive annual direction. In last month’s report, seven indicators moved in a positive monthly direction and three indicators moved in a positive annual direction.
The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.