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Colorado Dodged a Recession This Year. Can It Do It Again?

Despite job gains moving at their slowest pace since 2011 and extreme stress in commercial real estate, Colorado managed to stave off a recession this year. Many are wondering whether it can keep an economic downturn at bay again next year.

Colorado’s economy next year won’t be a bed of roses, with job gains running at their slowest pace since 2011 and commercial real estate under extreme stress. But neither will it be a bed of thorns, as inflation eases and a recession doesn’t set in, according to the 2024 Colorado Business Economic Outlook.

“It is a slower-growth story. There are positive nuggets in there. We aren’t forecasting a recession and we expect a continued abundance of job opportunities for people,” said Brian Lewandowski, executive director of the Business Research Division at the University of Colorado Boulder Leeds School of Business, which puts the Outlook together each year.

The Outlook, based on input from 130 individuals across a variety of industries, as well as a sophisticated computer model, forecasts employers in the state will add 42,000 nonfarm jobs. The state’s unemployment rate will average 3.4 percent, not far off the 3.3 percent rate reached in October.

Adding 42,000 jobs translates into a job growth rate of 1.4 percent, below the 2.2 percent growth rate estimated for this year. Initial employment reports through October put Colorado at a 1.1 percent annual pace, so reaching the expected rate will depend on some big revisions.

“We went from being roughly a top 10 state to being a bottom 10 state for job growth. How could we be so wrong and do we need to revise down our employment numbers?” Lewandowski said of the questions the Outlook panel asked as it tried to prepare its 2024 forecast.

The team essentially did the equivalent of throwing a red flag in football and challenged the initial statistics, which are based on employer surveys and later adjusted based on the actual headcounts reported in quarterly unemployment insurance premium reports.

Other indicators were showing a much stronger economy than what the job numbers were suggesting. And helping with that decision, Ryan Gedney, a senior labor economist at the Colorado Department of Labor and Employment, has consistently argued employment growth this year will end up much stronger than initially reported. Revisions for the first two quarters so far are backing up his view.

That said, layoff announcements have been rising in Colorado as the year comes to an end. DISH Network, which has been expanding rapidly to build out a new national cellular network, last month announced it would let go of 499 workers in Littleton and Englewood.

Broadcom announced it would cut about 2,800 jobs at VMWare following an acquisition of the company. That includes 184 workers in Broomfield, according to a letter filed on Nov. 27 with the Colorado Department of Labor and Employment.

VF Corp., a sportswear and footwear maker behind several top brands, said at the start of the month it would let go of 500 employees, including just under three dozen at the company’s headquarters in Denver.

Some of the strongest hiring this year has come at local governments and at hotels and restaurants, which aren’t the highest-paying places in terms of wages, said Richard Wobbekind, an associate dean and a senior economist at Leeds.

The strongest job gains next year are forecast to come in professional and business services, where positions are mostly on the upper end of the pay scale. Education and health care should contribute to employment growth, and governments are expected to keep hiring, aided on the local level by higher property taxes.

Higher interest rates, however, will remain a major headwind for the economy and are expected to contribute to job losses in construction, finance and real estate. Manufacturing and information, which includes tech, are also forecast to see declines.

Wobbekind isn’t in the camp of economists expecting a sharp drop in interest rates next year, saying they will stay elevated for longer than expected. Homebuyers holding out for a 5 percent rate on a 30-year mortgage should be looking for things to stay closer to 6 percent.

A huge reckoning continues in commercial real estate, and while it is playing out slowly, loans made under now unrealistic assumptions will have to be reworked. Banks continue to tighten their lending standards as they try to build up their reserves against losses, and venture capital remains scarce.

Yet the economy can continue to move forward as long as consumers hold in there, which they have shown a willingness to do.

“Our committee members are expressing optimism in a slow environment,” Wobbekind said. “We will be resilient. We will continue to have growth.”

But Wobbekind also concedes the Outlook, which calls for U.S. GDP to gain 1.4 percent next year, is among the more optimistic ones out there. On Monday, the National Association for Business Economics forecasted that U.S. economic growth would slow to 1 percent by the fourth quarter of next year. About three out of four of its economists surveyed put the odds of a recession next year at 50 percent or lower, which was an improvement from the sentiment in the October survey, but still not a ringing endorsement.

Marcel Arsenault, CEO of Real Capital Solutions, offered a more dire view of what is coming, shaped in part of his understanding on what is going on in commercial real estate, which was the focus of a keynote panel that followed the Outlook forecast.

“In our shop, we are worried about a recession,” Arsenault told the crowd gathered at the Grand Hyatt Denver. He predicted Colorado would likely lose jobs next year and that the vacancy rate for apartments, which are being overbuilt, could reach 15 percent next year, or triple the current rate.

Consumer spending, which accounts for about 70 percent of economic activity, will be key in determining how quickly the economy slows next year and whether it tips into a recession. And inflation, both real and perceived, could influence the willingness of consumers to spend.

The Outlook calls for consumer inflation in the Denver area to average 3.2 percent next year, which is below the 5.4 percent annual rate measured in September. But views diverge on how quickly inflation can get below the 2 percent level the Federal Reserve is targeting, which would allow it to start lowering interest rates.

Inflation in metro Denver has run substantially hotter than in the country as a whole, driven by larger jumps in rents and other housing-related costs, which account for more than 40 percent of the weighting in the Consumer Price Index. More volatile gasoline prices in the region are also causing consumers in the region to fork over more money.

Ron Throupe, an associate professor of real estate associate professor at the University of Denver’s Daniels College of Business, said the way the federal government calculates housing inflation contributes to a long lag that distorts the overall inflation number.

Shelter in inflation, as reported in the CPI for Denver, was running 8.4 percent in September. But other rent indices were capturing much smaller increases this fall. Apartment List, for example, has Denver apartment rents down nearly 1 percent over the past year through November. Eventually those declines will make their way into the official CPI numbers, Throupe said, causing them to show sharp decreases.

“We are going lower as far as I can tell,” he said, even raising the possibility that deflation could emerge. He expects the Federal Reserve could start cutting interest rates next summer, sooner than what many economists expect.

Two other economists speaking on the same panel as Throupe on Monday argued for more persistent inflation going forward.

“Let’s get to 2 percent before we start talking about deflation,” said Gedney, who noted that an aging population and tight labor market are likely to keep upward pressure on wages well into the future.

Even before the recent surge of inflation coming out of the pandemic, labor shortages were causing wages in Colorado and elsewhere to surge above the long-term trend, Gedney said. He estimates that average weekly wages in Colorado in 2022 were about 20 percent higher than would have been the case if they had followed the trend that existed between 2000 to 2016.

Wage gains have mostly kept up with inflation, but so far this year workers are behind by 1.7 percent in real terms, in part because of the higher inflation rate in the region.

“Above 2 percent in 2024 and probably again in 2025,” said Emily Dohrman, an economist with the Colorado Legislative Council, adding that a negative rate would likely require a big downturn in the economy.

Arsenault argued people should prepare for the scenario the Outlook calls for — slower growth with no recession — while also being ready for the possibility of a more severe downturn.


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