March 2011
Uncertainty in nation’s economy could slow recovery progress
The nation's economy continues to recover, although considerable uncertainty could make for slow progress, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for March 2011.
The Bureau of Economic Analysis' downward revision to fourth quarter GDP growth partly reflected a decline in spending by governments, particularly those at the state and local levels. Governments nationwide face significant budget turmoil, and Colorado is no exception. Even if lawmakers can agree on difficult budget issues in the coming months, government spending reductions could hinder the nation's growth.
The GDP revision also showed household spending rebounded in the fourth quarter, although the pace was slightly slower than analysts originally thought. Consumers' perceptions of the current business climate are gradually improving, although they remain generally pessimistic about the prospects of job and income growth.
"Mixed economic signals are not necessarily a negative sign—some of the ambiguity lies in data mechanics, and inconsistent trends are common immediately following a downturn. A clearer picture should emerge as the economy continues to recover," stated Patty Silverstein, chief economist for the Metro Denver EDC and president of Development Research Partners.
The housing market is also exhibiting mixed signals. Because the homebuyers' tax credits artificially inflated home sales—and, to some extent, new construction—during the first half of 2010, comparisons to that period are inherently biased.
Median home price data for metro areas—which the National Association of Realtors produces on a quarterly basis—give a mixed picture of housing markets in the fourth quarter. Seventy-eight of the 152 metros with price data reported a fourth quarter median that was higher than the median for the fourth quarter of 2009. Three metros reported no change in median home price over-the-year, and 71 reported median price declines. The fourth quarter median home price for the Denver-Aurora-Broomfield MSA ($229,800) was three percent higher than last year's median, and the fourth quarter median for the Boulder MSA ($355,000) was up 3.3 percent year-over-year.
Other housing indicators, though, are less ambiguous. The Mortgage Bankers Association's most recent National Delinquency Survey suggests the nationwide delinquency rate has bottomed out, and Colorado's delinquency rate is considerably below the national average.
"The market certainly has distance to recover, but stabilizing delinquency and foreclosure trends are welcome news," said Silverstein.
The fourth quarter 2010 Market Trends report released by Newmark Knight Frank Frederick Ross (NKFFR) suggests Metro Denver's office market broadly stabilized in 2010. More stability, however, does not necessarily mean all submarkets are recovering. In fact, the NKFFR report shows submarkets that began to recover in 2010 were concentrated in the downtown, southeast, and northwest portions of Metro Denver. Looking ahead, the report suggests office market leasing volume will increase this year and rental rates will remain stable.
With a favorable balance of supply and demand and affordable rents, Metro Denver's industrial market is outperforming markets elsewhere in the nation, according to the NKFFR report. Industrial market absorption in Metro Denver will increase in 2011, although activity will be slower than it was during the rapid industrial expansions of 2006 and 2007. Industrial lease rates should remain stable early in the year and could even rise as economic conditions improve. The report also notes that fundamentals for warehouse space are improving more quickly than they are for flex space.
Overall, nine indicators moved in a positive monthly direction in this report, compared to 12 indicators in the previous report. Fourteen indicators moved in a positive annual direction in this report and in the previous report.
The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends. Key highlights include:
Labor and Employment
- The Colorado Department of Labor and Employment is currently making its annual benchmark revision to employment and unemployment data. Revised data for prior years and new estimates for January 2011 will be released on March 10. An update to the employment section of this report will also be released at that time.
- The average weekly number of new claims for unemployment insurance filed in Metro Denver during January was 6.5 percent lower than the average number filed in January 2010. Similarly, the average number filed statewide in January was 7.1 percent lower than last year's average. While claims activity is stabilizing, the absolute number of claims being filed is still considerably higher than it would be in a healthy economy.
Consumer Sector
- Metro Denver retail sales in September were 8.8 percent higher than sales reported in September 2009. Retail sales growth in the region accelerated throughout the third quarter, and total sales through the first nine months of the year were six percent higher than sales for the same months of 2009. (Note: the Colorado Department of Revenue recently upgraded its computer system. As a result, the release of the retail trade sales data is running several months behind. The September statistics were the most current available as of March 1.)
- The Conference Board's U.S. Consumer Confidence Index rose for the third-consecutive month in February. Households still have a generally bleak outlook on job growth, but their expectations for overall business conditions are gradually improving. The Mountain Region Index fell more than eight points in February as households reported slightly weaker long-term expectations and significantly weaker assessments of today's business climate. The wide swing in the Mountain Region Index numbers should be interpreted with caution, however, consumer confidence is highly volatile, and the Conference Board recently changed data providers.
- While households are facing higher transportation costs, travel trends remain strong. Metro Denver's average hotel occupancy rate in January (57.5 percent) was more than six percentage points higher than the year-ago average. The average room rate for the month ($101.49) was up 2.8 percent over-the-year.
- The Dow Jones Industrial Average ended February with a 5.6 percent year-to-date return. The returns on the S&P 500 and the NASDAQ reached 5.5 percent and 4.9 percent, respectively, and the return on the Bloomberg Colorado index reached 2.7 percent.
Residential Real Estate
- The total number of existing Metro Denver homes sold in January was 8.4 percent lower than the number sold in January 2010. However, the over-the-year comparisons during the next several months could make the condition of Metro Denver's housing market seem worse than it really is since the homebuyers' tax credits artificially boosted sales through the first half of 2010, therefore comparisons to that period are inherently biased.
- The January average single-family home sales price in Metro Denver was 6.7 percent higher than the last year's average, but the January average condominium price was down 4.8 percent over-the-year.
- The Mortgage Bankers Association's National Delinquency Survey shows 5.9 percent of mortgage loans in Colorado were past due in the fourth quarter of 2010. The share past due nationwide was 8.9 percent. In fact, Colorado had the eighth-lowest rate of loan delinquency in the fourth quarter and ranked 10th for the lowest rate of serious delinquency, which the MBA defines to include loans 90 days or more past due and loans in foreclosure.
- New foreclosure filings reported by the seven Metro Denver counties in January were below totals in the previous year for four counties. The total number of January filings across all seven counties was 1.1 percent below last year's total, but housing markets still have distance to recover. The seven-county total number of filings in January was nearly three-times the January average reported before the foreclosure crisis began.
- Metro Denver builders pulled 12.5 percent fewer permits in January than they did one year earlier. Builders pulled no permits for apartment projects, and the number of permits requested for condominiums and townhomes was down almost 50 percent over-the-year. By all measures, the home construction market remains sluggish; the total number of permits pulled in January was about one-fifth of the average typically pulled in January before the downturn.
*A full report is available to Metro Denver EDC investors.