A Robust Economy with Early Headwinds and Potential Strong Gusts
Colorado's indexes are pointing in a mostly positive direction in the short-term
The U.S. economy continues on an upward path, but the global economy appears to have peaked. Will a stronger dollar promote more imports given the current trade confrontation? The U.S. economy is booming (relatively speaking) with rampant corporate optimism. Strong cash positions in companies from earnings and tax reductions promote stock buy-backs (strengthening stock prices), capital expenditures and higher compensation opportunities. But early signs suggest gusty headwinds are forming. The largest economy in the world and global hegemon of the last half century is moving in a different direction toward nationalism. Major economic restructurings create disequilibria which are seldom stimulating in the short-term as uncertainty mounts.
Colorado’s leading indexes, along with most states (see map), are pointing in a positive direction for the next six months. Current employment statistics provided by the U.S. Bureau of Labor Statistics show Colorado’s year-over-year growth at 2.8 percent, ranked fifth in the nation behind Utah, Idaho, Nevada and Texas.
My forecast is for growth cooling after a great second quarter. Inflation should pick up, interest rates will rise and low unemployment persist. Globalism is challenged, asset prices are leveling off, oil prices are rising, and mid-term U.S. elections will provide plenty of political uncertainty. The impact of this forecast on wage and salary employment growth is generally consistent with other economists around the state. The consensus is for wage and salary growth of only 2.3 percent for 2018 followed by an even more conservative forecast of 1.9 percent in 2019.
Overall, looking forward I remain encouraged for Colorado based upon:
- The state’s economy is hot again after catching its breath at the end of 2017
- Higher oil and gas prices support the energy sector
- Investment in health care, tourism and infrastructure is creating capacity and jobs
- Housing and real estate, health, professional, technical and national defense should do well in the coming year
- Statewide Regional Tourism Act projects begin opening in 2019 continuing a hot tourism market.
On the negative side, about half of Colorado’s international exports are at risk under a prolonged trade war scenario. Fortunately, the state’s economy is not driven by international trade, but agriculture is vulnerable.