A look at the 2020 economy and key risks to Colorado businesses
Insights from the Citywide Banks’ Economic Forecast Forum
Citywide Banks hosted its 21st annual Economic Forecast Forum for Denver business leaders on Feb. 4, 2020, at Infinity Park Event Center. The event featured a keynote presentation by Anirban Basu, the chairman and CEO of Sage Policy Group, Inc., an economic and policy consulting firm headquartered in Baltimore, Maryland.
The discussions at the forum focused on the issues that are expected to impact Colorado businesses in 2020 and beyond, including employment, wages, consumer spending, inflation, debt and other topics.
The big picture
Basu commented that the United States economy is entering 2020 with some very good momentum. The country is now in the eleventh year of economic expansion, and the economy continues to show a lot of resilience amidst challenges. However, the risk for a recession over the next 18 months is more elevated than any time since 2007. Ultimately, Basu asserted, the next downturn may be a soft landing, similar to 2016.
The good news
There are a lot of positive factors contributing to our economic growth in Colorado and across the country. Most significantly, job growth is very strong, wages are increasing, inflation is flat and consumer spending is strong.
Through December 2019, businesses have added new jobs for an unprecedented 111 consecutive months. This has helped drive the unemployment rate to a 50-year low of 3.5%. Colorado continues to be a top market for job growth. Employment throughout Metro Denver, as well as Colorado, remain higher than the national average. Among the top 25 U.S. metro areas, Denver posted the ninth biggest jump in employment from 2018 to 2019. As of November 2019, metro Denver’s 2.4% unemployment rate was the third best rate among the top 25 metro areas.
The tight labor market continues to drive wage growth. Currently, the United States is seeing the fastest wage growth in a decade. However, as Basu explained, the rate could be even more substantial. The wage increases have been slowed by the ongoing transition to a younger workforce. Retiring baby-boomers are gradually being replaced by more younger employees with less compensation. This is impacting the average wage numbers.
Consumer spending represents 68% of the U.S. economy. And, with less than 5% of the world’s population, the American economy was responsible for 25% of the world’s GDP in 2019. The good news is that consumer spending has steadily grown since 2009. Spending hit $14.7 trillion in the third quarter of 2019. Basu contends that with expected new job growth and wage increases, consumer spending should continue to climb in the foreseeable future.
Rising debt creates significant risk
While the current health of the economy is strong, there are some glaring risks. Basu noted that the level of personal, corporate and government debt makes us very vulnerable.
“One could argue that America is growing for all the wrong reasons,” asserted Basu. “The right reasons would be rapid labor force participation growth and rapid productivity growth. Instead, we are growing because the federal government is willing to take on a lot of new deficit.”
Basu explained that if the 4.6% (of GDP) deficit spending is removed from the metrics, the U.S. economy is not growing at all. In 2020, the forecasted federal debt is nearly twice its average over the past 50 years. The government deficit is coupled with corporate debt that continues to rise to unprecedented levels. Personal debt is also concerning, with balances steadily rising for the past 5 years. Personal household debt now sits at $1.3 trillion higher than the previous peak in 2008.
Despite its vulnerability, the U.S. debt levels are dwarfed by the situation across the world. According to the International Institute of Finance, global debt reached a record high of $250 trillion in the first half of 2019. Worldwide debt, including household, government and corporate, is forecasted to surpass $255 trillion, representing 320% of global GDP.
Key priorities for businesses
Basu noted that the trending data points to a potential mild downturn within the next 18 months. For businesses, he recommends that companies position themselves now for reduced demand and increased cash flow needs.
This means exploring ways to raise cash reserves, evaluating if their lines-of-credit are adequate and reviewing their staffing models to balance expenses. He also discussed the importance of tightening relationships with bankers, insurers and other partners, which will be critical during a downturn.
Insights from Colorado business leaders
In conjunction with the Economic Forecast Forum event, attending business leaders were asked a handful of questions about their companies and the Colorado economy. The poll is annually conducted by Citywide Banks. In 2020, 71% of respondents predict positive growth for the Front Range economy, compared to 68% in 2019.
A majority of survey respondents (54%) said their companies will add jobs in 2020. This compared to only 44% from last year’s survey. With more companies planning to add employees, it’s no surprise that businesses also said the cost of labor will be the biggest factor to their growth in 2020. Last year, respondents said customer demand would be the biggest impact to growth.
This month’s poll also asked businesses about the top issue that Colorado’s state legislation needs to resolve during 2020. Traffic congestion topped the list followed by affordable housing. Both were the top issues last year as well. Full poll results can be viewed here.
A full video replay of the Economic Forecast Forum is available at https://youtu.be/gwIyjhD5FvQ.
(This sponsored content was provided by Citywide Banks.)
Steve Ebner is the regional marketing officer for the West Region (CA, CO, MT) at Heartland Financial USA, Inc. (NASDAQ: HTLF). Citywide Banks is a subsidiary of Heartland Financial USA, Inc. and a member FDIC. Learn more at www.CitywideBanks.com.