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Colorado Outlook
Spring 2008
 Top Four
Here’s a little tidbit to share with family and friends at an upcoming get-together…Colorado currently ranks fourth of the 50 states when measuring the annual growth pace of employment, with a 2.1% rise over the most recent 12-month period.
Much of the Rocky Mountain region and the nation have been in transition to a slower economic growth pace in recent months. In contrast, Colorado’s solid but unspectacular job growth rate in place since 2005 has continued unabated.
Regional performance has clearly slowed, with Arizona and Nevada dealing with painful corrections from excessive home building and home price appreciation during the 2003 to 2006 period. In contrast, energy- and agriculture-rich Wyoming and Montana are thriving.
Idaho, New Mexico, and Utah have slowed, but continue to generate modest employment gains. Despite more and more signs of a U.S. recession now seemingly underway, we do not expect either Colorado or the broad region to succumb to recession.
 Job Detail
The Colorado economy added an estimated 47,200 net new jobs during the most recent 12-month period, as noted a 2.1% growth rate. Half of the new jobs created were within the Denver-Aurora metropolitan area, with Colorado Springs and Ft. Collins-Loveland each accounting for roughly 10% of net statewide gains.
The state’s goods-production sector added a weak 1,100 net new jobs during the most recent 12-month period. The natural resources & mining sector recorded impressive job gains, with a small rise in construction jobs. Manufacturing employment has declined modestly, in line with manufacturing job weakness around the nation.
Service-providing employment continues to lead the way with the net addition of more than 46,000 jobs during the past year, led by gains in trade, transportation & utilities; education & health services; professional & business services; government; and leisure & hospitality.
A modest rise in the state’s unemployment rate has also occurred in recent months. An average jobless rate of 4.3% in early 2008 compares to the 3.8% average jobless rate during 2007 and matches the 4.3% rate during 2006. Greater labor availability should help Colorado employers of all sizes to more easily fill open positions, a truly challenging task last year.
Freeze Up
Thousands of Colorado consumers and companies are being whipsawed by domestic and global credit markets that have gyrated wildly during the past 18 months. Lenders aplenty were available in recent years to finance just about anything, with many lenders around the nation focused on subprime mortgage loans. Such loans were then packaged with others, sliced and diced into a myriad of loan pools and investment products, and ultimately bought by investors around the globe in search of higher investment yields.
Such credit excesses have now given way to tens of billions of dollars of loan and investment losses, high levels of lender paranoia, and domestic and global credit markets which have routinely frozen up in recent months. Even traditional lending and investment markets beyond the subprime sector have struggled with frightening levels of paralysis at times.
One result of such market anxiety has been higher levels of mortgage interest rates than would traditionally be available. The old “rule of thumb” was to take the investment return (or yield) on 10-year U.S. Treasury notes and add 1.50%-1.60% to get a good idea as to the level of 30-year fixed-rate mortgages (known as conforming loans) destined for purchase by various government entities such as Fannie Mae and Freddie Mac.
Recent 3.40%-3.60% yields for the 10-year Treasury would typically equate to 30-year fixed-rate mortgages around 5.00%. Unfortunately, credit market anxiety now finds such mortgage rates in a 5.70%-6.30% range. In addition, many lenders have imposed more stringent requirements for borrowers to qualify for loans, including larger down payments.
The “jumbo” mortgage market has also experienced higher mortgage rates when compared to conforming loans. Such loans are critically important since much of Colorado’s current excess of new and existing homes for sale is in homes priced above $500,000. One major component of the recently enacted $168 billion fiscal stimulus package temporarily increases the upper limit of conforming loans to as high as $729,750, versus the prior cap of $417,000, with the Colorado impact varying by county.
Colorado has not been immune from the housing crisis impacting the nation. Many Front Range communities are dealing with painful increases in mortgage delinquencies and home foreclosures.
The state’s commercial real estate sector remains healthy, with numerous projects underway. Other projects may be delayed, however, falling victim to shell-shocked domestic and global credit markets which have limited credit availability in all too many economic sectors.
Colorado View
Serious domestic and global credit market anxiety and rising home foreclosures have hurt the Colorado economy. The state’s overall job creation pace has remained steady, however, even as its neighbors have slowed. We do expect some employment slowing over the balance of the year.
The eyes of the world will focus on Denver in August as the Democratic National Convention takes place, an event of possibly historic proportions. Colorado’s longer-term economic posture remains one of the most attractive in the nation.
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