Posted by admin on March 19, 2012 under Colorado Springs, Construction | 
The Association of General Contractors’ Chief Economist, Ken Simonson, recently spoke to economists in Denver. He noted construction will continue improving in:
- Power & Energy
- Manufacturing facilities
- Warehouse & Distribution
- Hospitals
- Apartments
The Budget Control Act (the default provision resulting from the “Super” Committiee’s inaction) requires across the board cuts starting January 2013. That could impact construction on military and federal facilities throughout Colorado as Federal and defense accounts must cut back by 5% and 8% respectively. Even with improvements in State and City revenues public sector expenditures on construction will drop after 2012.
Forecasts for other sectors:
- Single-Family – nationally flat. We think locally there will be improvement – in the 10% to 20% range.
- Highway – down in 2012-13
- Hospitals and higher education – prospects for raising money has improved nationally. We think pressures for cost control are especially acute in these sectors limiting new facilities while making existing facilities more functional and energy efficient. Denver and Colorado Springs already saw a hospital boom in the last decade and is likely to be in the capacity ramp-up stage.
- Pre K through 12 – lower through 1013
- Retail – Big boxes are shifting strategies for market share – moving into smaller facilities closer to the consumer. This will impact tenant improvements mainly. In Colorado Springs Walmart and convenience store chains going through the planning process for a number of neighborhood stores.
- Office will continue to be flat. We think there will be some early investing in renovations to test the payback on reducing utility costs. Medical and dental offices are beginning to percolate, but nothing substantial.
- Lodging – mainly flat with a small bump. More on the renovation side.
Overall, the Great Recession resulted in a 36% decline in construction employment in Colorado (29% nationally). Workers are leaving the industry which could have longer-term implications on industry wages, although in the short-term employment costs are increasing slower in construction than in any industry. Other construction costs are mainly flat to dropping a bit. This includes copper, steel, concrete and asphalt, as well as most other building materials. With China’s economy cooling down, material costs should stay steady for now. Of course transportation costs will impact delivery costs.
Posted by admin on under Colorado, Colorado Springs, Denver, Economic Development, Macro Economy, Real Estate |
Not only do we anticipate 2012 continuing modest growth, but 2011 was better than originally reported according to the Bureau of Labor Statistics’ updates on the preliminary data releases they issued in 2011. Given we had forecasted a return to growth for 2011 in late 2010, we were surprised with BLS’ originally reported declines in Colorado Springs wage and salary employment. As it turns out our original forecasts for 2011 were reasonably accurate. The two graphs show labor and salary employment as originally reported and then as updated.
Hopefully our 2012 forecast will be accurate as well. Despite rising energy prices, we see continued growth, consistent with 2011 locally and better nationally. Nationally, the growth is being fueled by:
- Optimism of an election year,
- Lack of Federal austerity,
- Low mortgage rates,
- Stabilizing housing markets,
- Growth in U.S. manufacturing,
- Consumers feeling bolder.
On the state and local levels, non-residential construction is strong at military installations, the Southern Delivery System, and data centers. The Multi-family apartment market is robust with construction which will accelerate into 2012-13. The commercial real estate market will see improvement in the Denver metro area, but not much in Southern Colorado
The bottom line is Colorado continues to grow despite slow job growth. It’s all a matter of relativity – Colorado relative to the nation. Peyton Manning’s interest in the Denver Broncos because of the quality of life is indicative of our most fundamental strength.
The real concern is for 2013 and beyond. Federal austerity is a given at some point. The time to focus on economic development in Southern Colorado is now!
Posted by admin on January 24, 2012 under Colorado, Denver, Real Estate, Regions |
The KC Federal Reserve District’s economy is relatively more focused on commodities and national defense. The region encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico. Job growth in the region during and after the last eight national recessions is consistent with the nation; however, the region is consistently late to fall into recessions and early to recover from recessions.
FNC Residential Index
One should not assume that just because Denver has done so well (relatively speaking of course) during thr housing bust that the entire state has performed the same way. However, regions do tend to generally move together with economists’ favorite assumption of ceteris paribus.
Posted by admin on January 23, 2012 under Energy |
by Tom Binnings
The coming year looks to be a repeat of 2011, when it comes to oil and gasoline prices. According to an analysis by the U.S. Energy Information Administration this will continue to place a drag on economic growth. While some areas, like Libya should be getting back to normal, there is Iran, as well as potential prolonged strikes among oil workers in Nigeria. The outlook for a softer oil market probably hinges more on the degree of declining demand as the BRIC (Brazil, Russia, India, China) economies cool down. However, even if their economies cool, the demand for autos among the emerging upper income households will probably keep demand for oil high in those nations. These events will keep oil prices volatile at the very least.
Another problem we have in the U.S. is the lack of summer gasoline refining capacity. Our refineries are aging and given the lack of growth in the U.S. market, the incentive for refiners is to invest their limited capital in growing markets like the BRIC nations. The need for additional summer refining capacity in the U.S. is to meet peak demand with different specs due to hot weather. Federal regs probably impact the investment decision as well.
Looking at recent history of gasoline prices, it looks as though oil price volatility based upon geopolitical events and then soft demand from the Great Recession has a greater impact on oil prices than refining capacity since the summer of 2008. Prior to that, late spring and summer seasonality shows up in the data. Here are the last six years of gasoline prices in Orange County, CA. http://www.OrangeCountyGasPrices.com/retail_price_chart.aspx?city1=OrangeCounty&city2=&city3=&crude=n&tme=72&units=us
Posted by admin on under Colorado Springs, Economic Development |
by Dave Bamberger
Over the past 30 years I have been involved with local economic development efforts both as a volunteer and as a consultant. During that time I had a chance to make many observations about how the process works. I have concluded that the two factors that are most important are: (1) creating primary jobs and (2) building a high quality living and business environment. Here are my thoughts.
A healthy local economy depends on primary jobs. Primary jobs bring dollars into Colorado Springs from outside the local economy. When those dollars are spent in Colorado Springs, secondary jobs are created. Primary industries in Colorado Springs include the military, visitor industry, aerospace, defense, manufacturing, higher education, national nonprofits, Olympic sports, financial services, information technology, telecommunications, call centers, and others.
Secondary jobs depend on primary jobs. Each primary job supports a little more than one secondary job in Colorado Springs. Take primary jobs away and the local economy slows, secondary jobs are lost and unemployment rises even further. That is what happened in the mid 1970s, the late 1980s, early 2000s and is happening today.
The local economy must create new primary jobs every year just to keep up with a growing labor force. Colorado Springs’s labor force grows every year, even if no new people move to the city. The number of young people entering the workforce is greater than the number of older workers retiring each year. Both primary and secondary jobs must be created each year to meet the needs of a growing workforce, or these new job seekers will have to move to another city to find work.
Creating new primary jobs must be a continuous effort. It’s a fact of modern business. Companies come and go. The local economy must create new primary jobs every year just to keep up with existing primary industry closing or moving jobs out of town. When a company closes or moves out of town, these primary jobs must be replaced, or the city’s economy will rapidly decline.
Creating primary jobs makes for a stronger local tax base. Creating new primary jobs every year means more in property and sales taxes for the city, the county, school districts and other local governments such as the library. Let primary job creation slip and the tax base will decline.
New primary jobs provide opportunities for local workers to move up to higher paying jobs. Most of the primary jobs created in Colorado Springs over the past three decades have paid higher than average wages. Many local workers have taken advantage of these higher paying jobs and have moved up the career ladder. Local income has increased as a result.
Primary job creation is not the cause of population growth. A little more than half of Colorado Springs’s recent population growth is due to natural increase, the difference between births and deaths. Certainly, some job related net in-migration does occur over the long run. However, many people do move to Colorado Springs to be near family and friends. Retirement is also a significant driver of migration to Colorado Springs.
Primary job creation produces a high return on investment to the citizens of Colorado Springs. Growth of primary jobs increases incomes and that means a stronger tax base. A strong local tax base combined with the voter support to use it generates the funding to build schools, provide quality education programs, maintain and improve roads, build parks, fund recreation programs and maintain a high level of public safety.
In the long run the most effective way to create new primary jobs is to build a quality living and business environment. Attracting new primary industry and providing existing primary businesses the opportunity for expansion is much more effective in a community with high quality schools, roads, open space, business climate, recreation opportunities, workforce, public safety and a strong tax base. These are the key factors that provide a foundation for the local economy to continue to renew itself and to thrive.
Posted by admin on under Colorado, Colorado Springs, Government, Retirement |
by Mike Anderson
The Colorado Public Employees’ Retirement association (PERA), like most state and local government pension funds, has become a subject of much media attention and often a source of political debate. Oddly missing from the public discourse, however, has been any discussion of the economic impact and importance to the economy of the benefit payments made by pension funds to their retirees.
PERA retirement benefit payments, like military and other public and private pension plan payments, represent deferred compensation to the retiree. The retiree often spends a large share of that deferred compensation purchasing necessary goods and services in the community in which they reside and thus contribute to local economic activity.
In 2011, there were nearly 9,800 PERA retirees living in El Paso County. PERA retirement benefits paid to those retirees in 2011 totaled $348.9 million, or roughly $35,600 per retiree. It should be noted most PERA members do not participate in Social Security and, therefore, the PERA retirement benefit is designed and funded to provide total retirement monies consistent with the private sector where retirement is based on a combination of a private plan and Social Security. Of the 53 Colorado counties, El Paso County had the second largest number of retirees and benefits paid, being surpassed only by Jefferson County.
A recent study titled, “The Economic and Fiscal Impacts of Colorado PERA”, produced by the Colorado based economic consulting firm Pacey & McNulty, attempts to quantify the relative importance of benefit payments to PERA retirees in Colorado. The report can be found at: http://www.copera.org/pdf/Impact/Impact2011.pdf . It contains an analysis of impacts on the Colorado economy as a whole, and for each of its regions and major metropolitan areas including Colorado Springs (El Paso County).
In their study, Pacey & McNulty utilized an input-output based impact model known as IMPLAN. IMPLAN is a widely recognized model that Summit Economics has also successfully applied in a number of its impact analysis projects. The model is used to measure the multiplier effect of additional dollars introduced into a region’s economy as a result of some type of economic event. As Pacey & McNulty succinctly point out in their report: “when a household receives PERA benefit payments, it represents an infusion of income into the local economy that creates a chain of economic activities whose total impact is greater than the initial benefit payment. That is, these payments have substantial “ripple” or “multiplier” effects where one recipient’s spending becomes someone else’s income…The impact of the PERA benefit payments reaches well beyond those who receive the initial benefit payments as the recipient can fulfill obligations such as purchasing groceries, apparel gasoline, etc.”
Some of the key findings of their study include:
• In 2011, PERA provided benefit payments of $3.03 billion to Colorado residents.
• In Colorado, the $3.03 billion in payments resulted in $4.31 billion in output (all goods and services transactions), $1.87 billion in value-added (State gross domestic product), $1.01 billion in labor income (worker wages), and 23,400 jobs.
• When the statewide results are analyzed on an industry sector basis, there are five industries in which the economic impact is greatest: Finance and Insurance, Health Care, Retail Trade, and Real Estate and Rental and Leasing.
• “PERA payments are a critical source of reliable, predictable income and provide an “automatic stabilizing” effect on state, regional and local economies, especially in economic downturns as these monies provide important stimulus in maintaining market activity.”
Digging deeper into the study, there is also some revealing data for the Colorado Springs area:
• PERA benefit payments to Colorado Springs metro area residents totaled $348.9 million in 2011.
• The $348.9 million amounts to approximately 3.9 percent of total payroll in Colorado Springs.
• PERA benefit payments in Colorado Springs resulted in about $436 million in output, of which $253 million is value-added above the benefit payments.
• Labor income (workers wages ) in Colorado Springs supported by PERA benefit payments were estimated to be $85.1 million in 2011, which sustained a total of 2,204 jobs in the area.
• Since PERA recipients pay a portion of their benefit payments in income taxes and also pay sales, use and property taxes as well as fees for licenses and permits. In addition, there are taxes and fees paid on the additional spending resulting from the multiplier effect. Total State and local tax revenue attributable to PERA benefit payments are estimated at $21.1 million in Colorado Springs. For Colorado as a whole, total tax revenue is estimated at nearly $232 million.
While the participants in the debate over PERA have found it difficult to agree on many points, all should be able to agree that protecting the financial health of PERA and its sustainability to preserve the flow of benefit payments to retirees throughout Colorado is important to the vitality of the state’s economy and and employment base.
No doubt the number of military retirees residing in the Colorado Springs area and the associated retirement benefit payments is many times larger than the number of PERA benefit recipients residing in the area. Imagine what proportion of total economic activity is attributable the expenditures of retirees when one adds to those amounts the retirement benefit payments made to retirees by other local government and private pension plans, and perhaps, social security payments to local residents. That will be a good topic for discussion in the future.
Posted by admin on April 18, 2011 under Colorado |
It’s always somewhat shocking to hear the Colorado unemployment rate is higher than the nation. This has been the case lately as unemployment news was getting better nationally while in Colorado, like much of the Rocky Mountain West, the unemployment rate was increasing. It appears we are generally lagging the nation (just like we did going into the recession).
The last two quarters did bring positive job growth to Colorado. It’s about time! Hopefully this positive trend will continue and will accelerate. We think it will in the private sector for the remainder of 2011 as population continues to move to Colorado and oil prices are pushing fossil fuel exploration and development in the northern Front Range. The agriculture economy is doing very well and manufacturing is seeing an increase in new orders.
If high energy prices persist, a renewal of oil shale activity could occur in the Grand Junction region and preliminary exploration is occurring in the southern half of the Front Range as well.
The biggest risks to Colorado’s recovery will center on energy prices dampening consumer confidence and demand as well as out-of-state tourism this summer. Housing will continue to be depressed, but will the bottom hold on prices? What will the rate of federal fiscal adjustment be and to what degree will it impact State budget cuts. Unfortunately, even under the best of circumstances recovery will not be robust.
The good news for longer term prospects centers on the early Census results. Colorado continued to outpace the national population growth rate along with Florida and the southeastern States, the Rocky Mountain Region, and Texas. The non-working household sector continues to provide an economic impetus with their retirement incomes (in many cases) making up for slow employment growth going back to 2000. In addition to the younger retirees, Colorado continues to attract the young and educated new entrants into the workforce. This alone is promising for the State’s future as an educated workforce attracts knowledge based industries. Downtown Denver is becoming quite the place to be for all active age cohorts, but it’s especially impressive to see the number of young people trying to make a go of it in Denver.
Posted by admin on under Government, Macro Economy |
Updated economic forecasts for the second quarter of 2011 and quarterly for one year thereafter, will start coming out shortly. Summit Economics contributes to the USA Today consensus forecast. As we reflect of the coming year and a half, the best analogy comes from the healthcare field. How will the patient react once removed from the life support systems known as Quantitative Easing 2 (QE2) and almost a $1.5 TRILLION federal deficit?
The Federal Reserve’s QE2 will end by summer and thus far there is no talk of a QE3. What impact will this have on longer terms asset markets like bonds, stocks, and real estate? Logic tells us asset values should drop a bit initially. In fact, this may have already happened as markets anticipate the future.
Washington agreed to budget cuts totaling almost $40 billion – a drop in the bucket compared to what is needed long-term. More cuts are likely when the debt ceiling is raised. Beyond that, both the White House and Congress appear to be serious about laying out a plan to get the fiscal house in order. Standard and Poors helped out a bit today be mentioning a possible downgrade of U.S. government debt, basically stating “Get the financial house in order.” While these are needed changes, what makes sense for the long-term may send the patient back into temporary shock.
Overall, we were impressed with the magnitude of job gains nationally in the first quarter, especially given fiscal strains faced by state and local governments. The private sector performed better than expected which is great news given the looming changes in life supports. As a result of these recent trends, we have increased our employment growth forecasts, but are sticking with our slightly more pessimistic forecasts of GDP growth staying closer to 3.0% to 3.4% for the first half of the year and then declining over the next year into the mid 2% range. While this is not where we want to be, it’s better than where we were a couple of years ago and demonstrates stability with slow improvement.
We don’t see much change in the unemployment rate in terms of improvement as we move into the second half of this year. With government spending dropping at all levels of government the private sector will have to make up for the difference to sustain growth. Can it?
In addition to the curtailment of support from the Federal Reserve and the federal government, events in the Middle East, Northern Africa, and Japan have increased oil prices. In our prior forecasts we were seeing oil price stability in 2011, but that has changed. Most oil industry analysts see higher oil prices as being the norm long-term. Similar to the other changes noted above, accepting the new reality and getting on with the challenges ahead will be painful on the short-term, but beneficial in the long-term as the U.S. changes its energy portfolio and focuses more on production closer to home using both traditional fossil fuels and new emerging technologies.
Given this reality, the economy could face a triple whammy – lower asset prices due to no more quantitative easing, less government spending, and higher energy prices. These likely events will stymie consumer spending which leaves private non-residential investment and export growth as the two primary sources of pushing GDP higher.
What’s the good news? Housing price declines seem to be waning and could be at the bottom. Regions in the U.S. with oil and gas will see increased investment and job growth. Innovation in the automotive industry in terms of fuel efficiency may lure buyers back into that market. The agricultural sector is booming. U.S. manufacturing continues to improve. Inflation, which will be significantly higher due to volatile energy and food prices, will remain low at its core (due to a weak economy). The Millennial generation is entering the labor force in large numbers helping drive up consumer demand as Baby Boomers lower consumption while preparing for retirement in an increasingly uncertain world.
Posted by admin on January 31, 2011 under Banking, Government, International, Macro Economy, Real Estate |
- The bond market – will longer term rates increase significantly or stay steady? Quantitative Easing 2 (QE2) will end by mid-year keeping demand for 10 year Treasuries up (pushing down yields), but will investors react even more negatively to long-term debt prospects and price in greater risk. Also will they factor in the trend in long-term oil and commodity prices – thereby adding in greater inflation expectations into their desired yield?
- Emerging market economies, especially in China, and how aggressive they are in attempting to curtail inflation in their country — possibly putting them in a recession. Higher levels of inflation in China should keep their currency weaker, but that’s assuming the Yuan were freely traded on markets as opposed to being pegged to the dollar. If the Chinese cool down their economy to control inflation, worldwide demand for oil and other commodities will weaken, hence reducing inflationary prospects around the world.
- Aside from increase commoditiy demand in the developing world, will development in the northern Africa and the Middle East cause oil supply disruptions and an increase in prices?
- The degree of price stability in US real estate market – will bonds and mortgage interest rates stay low, thereby providing support for real estate prices. QE2 seems to have been primarily designed to do this.
- The trade-off between dramatically growing state and local government spending which can result in higher taxes like we saw in Illinois or substantial layoffs as we are more likely to see in Colorado. The municipal bond market could be problematic as state, local government and school districts run short on cash.
Posted by admin on January 22, 2011 under Banking, Colorado, Lending |
United Western Bank of Denver was closed by the FDIC last week, representing the first Colorado bank to be closed since three were closed in 2009. Overall, Colorado has fared relatively better than the nation since 2007, in terms of bank closures with about one percent of the closures and two percent of the banks. However, Colorado has 31 problem banks (23% of all banks in the State) as compared to 14% of all FDIC insured institutions nationally being problem banks and 17% of banks overseen by the Comptroller of the Currency. The problem banks are being watched especially closely by regulators and have been issued decrees of one sort of another for corrective action that must be taken. (For a list of the problem banks go to calclatedriskblog.com.)
According to the FDIC only about 5% of problem banks eventually fail and the vast majority that do fail are merged into other institutions with the FDIC covering shortfalls between the assets and liabilities of any failed institution. In Colorado, 75% of the cases of problem banks result from those banks relatively high share of commercial real estate and development loans.
The problem banking list has grown by about 12% nationwide in the last year to 937 institutions. On a per capita, constant dollar basis, FDIC insured banks had the worst year of net income in the last 40 years (see graph). The Colorado banking industry barely broke even with earnings of $5 per person in the state. The U.S. did a little better at just over $35 per person. In the third quarter of 2010, banking earnings had improved dramatically from 2009 – growing from $2 billion among all FDIC institutions nationally to $14.5 billion. Still, 20% of all institutions had a loss in the third quarter.
In Colorado loans decreased 6% from 67% to 61% of assets in 2009. There was a corresponding shift to cash and securities. Anecdotally, this trend continued in 2010. Real estate lending and leases grew from 80% to 84% of all loans during the recession in Colorado as business loans are easier to get off the books by non-renewal on an annual basis. Within the real estate category, land and development loans dropped 8% in relative share while longer term loans grew in share.
The Federal Reserve’s 3rd quarter, 2010, survey of senior loan officers shows slight easing loan requirements. Despite this very slight easing of credit, demand for loans dropped significantly — especially among small borrowers. This is to be expected as small borrowers often put up the real estate equity for collateral and that equity has taken a serious hit. Besides, everyone is still looking for commercial investment opportunities in a risk adverse world.
While much of the focus in the last two years was on residential real estate, the next two years will focus in commercial real estate and even some select new development opportunities. The key element to watch is whether or not the regulators put pressure on banks to continue to reduce their commercial and development real estate exposure by not renewing loans when the balloons come due at terms investor borrowers can afford. If too much commercial real estate ends up in the banks’ real estate owned portfolio and the banks are required to liquidate quickly, a higher percentage of the problem banks will become bank failures and commercial real estate values will face significant downward pressure. The good news is that there will be plenty of investors waiting to buy — if they can get a great deal.
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