Economic forecast: storm’s over, but it’s still cloudy

Coloradans still have a tough economic road ahead, but the recession is over and we’ve moved beyond the major bumps, an analyst says.

“The car goes where the eye goes,” said Patricia Silverstein, president of Development Research Partners, at Vectra Bank’s 18th Annual Forecast Breakfast on Wednesday.

“For businesses, employees, we need to stay focused,” she said. “We need to keep our eyes on the target because, certainly, we have a lot of ground to gain back in the Colorado marketplace and in the Denver Metro marketplace.”

Colorado’s 8.8 percent unemployment rate is slightly better than the 9.4 percent national rate. About 200,000 people in the state are unemployed. In addition, 145,000 jobs were lost in Colorado from 2000 to 2009, and about 30,000 were added. Silverstein predicts 14,000 new jobs will be created in 2011.

Two industries, out of the seven key industry clusters, have grown in Colorado: cleantech and investments. In the energy sector, the cleantech industry had the highest growth rate, with 17,000 employees and a job growth of 7.1 percent in 2010.

With more people getting jobs, consumer spending has increased. The retail sales growth rate grew by nearly 15 percent in 2010, rising from -10.6 percent in 2009 to 4.3 percent last year.
Mark Snead, vice president and branch executive for the Federal Reserve Bank of Kansas City-Denver Branch, agreed with Silverstein.

“Consumers are spending, and they are spending in a very handsome way,” he said.

The retail sales growth rate has hit 6 percent nationally, Snead said: “Every major indicator is suggesting that we are back to roughly normal conditions, not bounce-back, but normal.”
Retail and office vacancy rates have declined from 2009 to 2010 due to the lack of new construction, Silverstein said. The residential real estate market has not been so lucky, however.

In 2004, metro Denver home sales peaked at 54,012, but when the housing bubble burst, existing home sales decreased to 42,070 in 2009 and — to Silverstein’s surprise – dropped to 38,818 last year. Silverstein expects to see an increase in 2011. Despite the slight decline in home sales, the median home price in Denver is higher than the U.S. median.

Snead said consumers need to decrease household debt, which began to exceed annual personal income beginning in 2000 and 2001.

“Prior to the 1980s, household debt was roughly 50 percent of income,” Snead said. “Then you see a steady increase. I would attribute much of this to steady declining interest rates, across the board – long- and short-term.”

Investment Strategy Manager Richard Long of Contango Capital Advisors Inc. said he had less faith in consumer spending than Silverstein and Snead, in part because of consumers’ depleted retirement portfolios. Today’s portfolios and assets are equal to what they were 10 years ago, he said.

Long suggested investors should preserve capital and have a diversified strategy.

“Be active, but cautious,” he said. “Every investment comes with risks. No one can predict the future accurately, and each investor interprets risk differently. Maintain margin for error — your portfolio should evolve as the world around you evolves.”

{pagebreak:Page 1}