By this time next year, the U.S. economy will face a recession that will drag the Colorado economy down with it in 2008, U.S. Bank regional economist Tucker Hart Adams predicted Tuesday.
In her closely watched annual economic forecast, Adams placed the chances of a national recession in 2007 at three-in-four. A recession is commonly defined as two consecutive quarters of economic contraction.
The last national recession began in March 2001 and ended that November, but it wasn’t certified until much later.
Adams, known as the “Duchess of Doom,” made a mark five years ago when she correctly predicted that recession. Since then, her forecast record has been more mixed.
On Tuesday, she set a timeline for the downturn to start – by the second half of 2007, predicated on slower job growth and a stalled housing market.
“This year, I am saying there are problems and giving you a date. We will have a negative quarter before the year (2007) is over,” said Adams, after speaking Tuesday to a couple of hundred bank clients and business people in downtown Denver.
Among Adams’ predictions:
The state will add 32,000 new jobs next year, a 1.4 percent rate of job growth, down from this year’s 2.2 percent rate, which is her estimate.
Housing permits will fall 11.2 percent, representing 4,878 fewer new homes being built.
Net migration will rise to 40,000 next year from 32,000 this year as people chase what they thought was a stronger job market.
She ranked a “hard landing” for the 2007 national economy as the most likely scenario at 40 percent, with a soft landing or mild downturn at 30 percent. A hard landing is when an economy moves rapidly from growth to recession, while a soft landing is a more gradual contraction.
The U.S. economy, as measured by gross domestic product, has grown more than 3 percent annually – on average – since the terrorist attacks of Sept. 11, 2001.
Yet, economists are raising caution signs going forward.
Richard Wobbekind, a University of Colorado economist, said recently that the Colorado and U.S. economies appear headed for a soft landing heading into 2007, with a key variable being consumer spending.
On Monday, a panel of 50 economic forecasters surveyed by the National Association for Business Economics said they had lowered previous estimates for U.S. economic growth, based on higher interest rates and energy costs. But they aren’t predicting a recession in 2007.
Yet, Adams isn’t totally alone. Nouriel Roubini, president of Roubini Global Economics, recently predicted a “deep and nasty” recession based on what he is calling the worst housing downturn in five decades. A Deutsche Bank forecasting model placed the chances of a recession next year at 40 percent.
Adams has been a bear on the Colorado housing market for three years, claiming that more homes are being built than can be supported by in-migration and job growth. A housing slowdown, already underway, will force consumers – who account for about 70 percent of economic activity – to pull back on spending, she said.
“People have maintained their spending by borrowing,” Adams said Tuesday. “That debt doesn’t go away.”
The last U.S. recession started in early 2001 after robust business spending reversed course. Colorado – which typically trails national economic trends – was among the hardest-hit states and had severe job losses.
If a national recession does hit next year, Adams predicted that Colorado wouldn’t be hit as sharply as states such as Arizona, California and Florida, where home values have skyrocketed.
“Unless the housing collapse is worse than we expect, Colorado is not facing a long, serious recession,” she said.
David Rowe, director of Denver Hardwood Co., attended Tuesday’s presentation by Adams. He said afterward that he is seeing the effects of a cooling construction market in Western markets, including Colorado, Oregon and New Mexico. But housing activity has been so robust for so long, that even with a decline, a significant amount of work will remain.
“We are a mean and lean organization,” he said. “We are prepared to weather any storm.”
Colorado, which is on track for a record number of foreclosures this year, may have already taken a good share of its lumps already, said Bill Kendall, an economist with the Center for Business and Economic Forecasting in Denver. “My most likely scenario for 2007 is continued expansion with slowing.”
Others, such as Vectra Bank economist Jeff Thredgold, are more optimistic.
Workers are starting to command meatier pay raises, which could support their spending. At the same time, gasoline, natural gas and other commodity prices are moving lower, which also could ease pressure on consumer finances.
“The Dow Jones industrial average would not be at 11,500 if the market expected a recession. It would be at 10,200,” he said.
Adams countered that she doesn’t factor in the stock market when making her forecasts.
To see the full report, go to www.coloradoeconomy.com.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
Adams’ record
Since she accurately predicted a national recession five years ago, Tucker Hart Adams’ scorecard has been mixed:
SEPT. 5, 2001 – HIT: Adams calls a recession. She was alone and early in seeing the slump but correct. “It will be well into 2002 before we see positive growth return to Colorado.”
SEPT. 4, 2002 – MIXED: Adams’ predictions of job and income growth proved optimistic, but she correctly downgraded her forecast in February 2003. “When I look at the consumer, I see a nervous and uneasy individual.”
SEPT. 3, 2003 – MIXED: Adams forecast that a warming national recovery would thaw out Colorado’s cold economy. Adams was premature in calling for a housing slowdown, and local inflation proved much weaker than she expected.
SEPT. 14, 2004 – HIT: Adams called for job growth throughout 2005. “With a little bit of luck, we will see a year of growth in 2005 of job creation,” she said. Her warnings about the proliferation of high-risk mortgages in the state proved prescient.
SEPT. 13, 2005 – MIXED: Adams straddled the fence, giving even odds to either a recession or a slowing economy under pressure from higher interest rates and energy costs. Her less-pessimistic scenario appears to be the one playing out.
Source: Denver Post research
