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
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.
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!
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.
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.
The chart shows the impact on jobs in the Colorado Springs area from the longest national economic expansion since WWII (1992 to 2000) followed by the Great Recession (2008 and 2009). After peaking at just over 260,000 jobs in the metropolitan area in early 2008, the economy lost 17,000 jobs. With a 2% growth rate the local economy will not recover the lost jobs until late 2013. A 3% growth rate recovers the lost jobs by late 2012.
TO VIEW THE GRAPH IN A LARGER MODE, DOUBLE CLICK ON THE GRAPH.