Economy expected to grow slow and steady in 2012
Doomsday might just have to wait. The Mayan calendar might end on Dec. 21, 2012, but most astute observers believe the coming year will bring Colorado’s economy more of the same sluggish growth it experienced in 2011.
For one, Patricia Silverstein, president of Littleton-based Development Research Partners and chief consulting economist to the Metro Denver Economic Development Corp. and the Denver Metro Chamber of Commerce, is neither bullish nor bearish on the state’s economic prospects for 2012.
“In general, our expectations are that 2012 is going to be similar to what we saw in 2011,” she says. In other words, expect economic growth in the lackluster ballpark of 1 percent.
Why can’t the economy get out of first gear? “There’s a lot of uncertainty as of yet,” Silverstein says. Despite more traction nationally, the specter of a eurozone collapse haunts markets worldwide, she says. “This is a really challenging time to be forecasting economic activity. It could tip either way.”
Colorado trades less with Europe than most other states, but that doesn’t make it immune to the Greek flu. “Colorado is very open to what is happening there because the U.S. is open to what is happening there,” Silverstein says. “We are operating in a global economy.”
Silverstein projects Colorado’s unemployment will remain high in 2012 but lower than the national rate. Standout sectors include health care, education, manufacturing and cleantech. “Health care has been amazing,” says Silverstein, citing demographics and medical tourism as drivers. “It has continued to grow for the last decade in spite of two recessionary periods.”
While manufacturing has exceeded Silverstein’s expectations, cleantech has been the shining star of the Colorado economy for the past two years. It was the only sector with positive employment growth in 2010, according to studies Silverstein conducted for the Denver EDC.
“The growth has been pretty phenomenal,” she says. Despite heavy competition from other states and countries, “We still maintain a competitive edge here in Colorado – but we need to be vigilant because this is an industry everybody wants.”
Also trending up is professional and business services, a good indicator of broader growth. “That tends to mean growth is happening in the overall economy,” Silverstein says.
Lagging sectors include government and construction, but Silverstein notes that multifamily residential construction has shown signs of life and looks relatively strong for 2012. With the Colorado population continuing to grow, things could change in a hurry, she adds.
“There are some folks who are worried how we’ll be able to react to a shift in the market. We are in a position that the market could switch very suddenly on us.” While this is not likely to happen in 2012, Silverstein says a construction rebound could happen as soon as 2013, adding, “The smart developers are getting their ducks in a row right now.”
Steve Riddle, managing partner at the Denver office of McGladrey, a national tax and business consulting firm with 70 offices nationwide, echoes Silverstein with his broad forecast for the state. “I believe we are going to outperform the national economy in certain pockets of growth,” he says, identifying mining and logging as particularly buoyant sectors.
“Everything is happening up north,” he says, citing the oil-rich Niobrara Shale Formation that’s been recently tapped in northeastern Colorado and eastern Wyoming. “Employment is up, and housing follows employment.”
Outside venture capital should tick up in 2012, Riddle adds. “They’re looking to put some money to work. A lot of them are geographically agnostic.” Like Silverstein, Riddle is bullish on Colorado’s prospects in cleantech, citing cultural factors as well as the state’s abundant sun, wind and open space. He also does not forecast a banner year for real estate as companies aim to reduce their footprint and associated costs by favoring buildings constructed to Leadership in Energy and Environmental Design (LEED) standards. “I believe we’re going to see home prices stay flat and sales stay flat,” he says. “I just don’t see construction coming back this year.”
Riddle says clients “are cautiously optimistic, but in an election year, a candidate’s tax positions can have a significant impact on hiring. There’s a wait-and-see attitude out there.” Employers are willing to let employees work flexible schedules and telecommute but don’t expect to make many new hires this year, he adds.
On the bright side, these hiring doldrums can’t last forever. “They are doing more with less,” Riddle says. “We all are. But ultimately, that’s not a sustainable situation.”