Colorado’s economy appears solid entering 2007, but a recent uptick in inflation and the continuing housing slump could slow the pace of economic growth.
The Front Range last year struggled with a major housing downturn, resulting in weak home prices, rising foreclosures and long sales times.
But Dawn McLaren, a research economist with Arizona State University, doesn’t think that alone will be enough to tip the state into a contraction.
It does, however, leave the state vulnerable to other shocks, such as a spike in oil prices or more consumer-price inflation of the kind exposed in metro- area and national reports last week.
“We have a compromised immune system,” McLaren said.
Other things still look good.
The state’s unemployment rate dropped to 4 percent in December, its best showing since August 2001. Non- farm jobs rose 1.9 percent in December.
The stronger job market translated into a 4.9 percent jump in wages paid by employers in the state as of the third quarter. Job growth appears to be encouraging discouraged workers to rejoin the labor force or start their own ventures.
“We are still optimistic about the Colorado economy. In retrospect, 2006 may have been a little stronger than we initially thought,” said Gary Horvath, managing director of the business research division at the Leeds School of Business at the University of Colorado at Boulder.
Revisions to last year’s job counts as well as a preliminary payroll tally for January will come out in early March. Horvath said he is confident that the revisions will show strength.
The bad news is that inflation, after staying low for three years, reared its head again last year in the metro area. Consumer prices rose 3.6 percent.
The increase would have been much worse absent a significant drop in energy prices during the second half of the year. Core inflation, or inflation excluding volatile energy and food costs, was rising at a damaging 4.9 percent pace in the second half of 2006.
The Front Range’s weak housing market is trapping thousands of households in foreclosure and leaving builders with excess inventories.
Despite the improved job picture, foreclosure filings rose 33 percent in the metro area last year, with more than 19,000 people filing.
Builders took out 13.8 percent fewer residential permits in 2006 than they did in 2005.
Consumers who feel less wealthy because their home is worth less or won’t sell as quickly could be more prone to reduce spending, McLaren said.
Retail sales in the state fell to a 3.3 percent pace in November, the last report available. After accounting for inflation, retailers appear to have lost ground.
A leading index that forecasts the direction of the metro Denver economy has declined for the past two months, said Patricia Silverstein, an economist with Research Development Partners in Littleton, which prepares the index.The housing slump is translating into weaker construction employment and spending, which will drag down growth.
“Our expectation is not that we are moving into a recession or anything like that,” she said. “The growth trend is slower.”
While mostly optimistic, Horvath said he worries about the potential loss of 1,000 high-paying jobs should the Intel plant in Colorado Springs close.
He also expects the manufacturing and information sectors to keep shedding jobs, despite a surge in exports last year.
Colorado companies exported $7.96 billion worth of goods last year, a 17.3 percent increase from the $6.78 billion sold abroad in 2005, according to the Colorado Office of Economic Development and International Trade.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
