The Economist: What does 2012 hold for Colorado?
I'm encouraged when I read the economic consensus is that growth will be really slow in 2012, much slower than the consensus expected six months ago. That's because, in my 35 years of forecasting, I've found that the consensus is almost always wrong.
It's not going to be a great year. But it will be a better one than we've seen for quite some time. One of my personal indicators is whether economic data are being revised up or down. The upward revision in the employment figures, both nationally and in Colorado, is good news. Over the years, when I've been asked what to watch if you only have time to pay attention to one economic statistic, this is what I tell people to focus on.
Employment in the U.S. at the end of 2011 was about where it had been in April 2000, at the end of the long 1990s expansion. Yet there were 11 million more people in the labor force last year, either working or looking for jobs. The labor force participation rate (the percentage of people 16 and over in the labor force) had fallen by over three percentage points; these are the discouraged workers who've given up job hunting.
After employment peaked in April 2008, we shed almost 9 million jobs in a little more than two years. We've only regained 2.5 million of them, an even poorer performance than the national economy. No wonder the Great Recession felt so awful!
Colorado followed a similar path. Year-end 2011 employment was at the same level as year-end 2000. We lost 151,000 jobs between April 2008 and January 2010. In the next two years we regained only about a quarter of them.
The signs of slow, steady job growth are all around us. I see a lot of help-wanted signs in stores and restaurants. Temporary hiring is up, usually a leading indicator of permanent hiring. Housing starts in metro Denver, Colorado Springs and Fort Collins are up, albeit from a very low base, which means more construction industry jobs.
One place we didn't see an upward revision in data is in the home sale statistics. It turns out the housing recession was even worse than originally reported, no surprise to anyone who needed to sell a home over the last five years. I think the good news here is that it can't get much worse. A friend who moved to Denver from Montana decided to leave her previous profession and become a real estate agent. I told her she's starting at the bottom so things can only get better.
Inflation crept up during 2011, due to soaring energy and commodity prices. The Consumer Price Index (CPI-U) rose 3.4 percent, fueled by a 20 percent increase in gasoline prices. Food and beverage prices rose about 4.5 percent and apparel almost 5 percent. For all of those out of work, recreation prices increased only 0.3 percent after falling in 2010 - unless you wanted to fly somewhere; ticket prices were up more than 7 percent.
Communications prices dropped almost 2 percent, one of the few items that actually declined.
Inflation should be lower in 2012. Gas prices inched down at the end of the year and are unlikely to soar another 20 percent. Unless, of course, there is a major supply disruption in the Middle East, which is always a threat.
Europe seems to be making progress on its financial crisis. The U.S. Congress is hopeless, but at least there are reports that the two parties are talking sensibly to each other behind the scenes. These are the two big risks to my forecast for a better 2012. Or, more correctly, my nonforecast since I no longer do forecasts.
So, it isn't going to be a great year, but things will improve. More Coloradans will find jobs, more homes will sell, consumer confidence will improve.
And the stock market? I didn't forecast the stock market even when I was doing forecasts. Up and then down, to paraphrase an old friend, but not necessarily in that order.