Colorado a ray of economic sunshine in the West

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It’s time to count our blessings and focus on the positive.

Colorado is in a healthier position than the rest of the West, California, Oregon, Nevada, the Southeast, Florida and South Carolina, said Nathaniel Karp BBVA Compass U.S. chief economist.

And the high-technology sector will help Colorado recover more quickly than other states.

“Compared to the long-term trend (since 1977), Colorado is almost back to its average,” Karp said.

Growth is likely to turn positive by the fourth quarter of 2009. Office and apartment vacancies are improving, and telecommunications and high-tech sectors are doing “relatively well.”

Although conditions are weak overall, consumer confidence is improving because job losses are easing and the labor market is stabilizing.

Colorado has more wealth in the equity markets compared to other states, he said.

“So the downturn in the stock market caused a bigger hit in Colorado — but now pressures are easing with the (upswing) in the equity market,” Karp said. “If you still have a job and see the financial markets going up, home prices stabilizing and high tech improving, your confidence is going to go up.”

And the state’s energy sector and mining has improved with the increase in energy prices.

The overall business climate of the state is “attractive” to businesses wanting to move here.

From 2000 to 2008, Colorado’s average gross domestic product was 2.8 percent.

The state is strong in research and development; generating a high number of patents and quality patents; venture capital; the military environment; and information technology.

“And this will bring long-term GDP growth to 3 percent,” Karp said. “We have to hang in there and wait till all the excesses (work themselves out).”

Commercial real estate is the sector that will “give us more pain than anything else.”

Consumer and commercial loan delinquencies and charge-offs are “very close to their peak,” because unemployment has peaked and the labor market is stabilizing. But commercial real estate loan defaults will continue to increase for almost all of 2010.

There is a lag time between GDP and consumer/commercial charge-offs, and a longer lag time between GDP and commercial real estate defaults. Colorado GDP bottomed out during the summer, he said, so consumer/commercial charge-offs will peak during first quarter, more or less, of 2010.

“Bank failures are likely to continue — we should not be surprised,” Karp said. “Mostly the smaller players and those highly concentrated in commercial real estate.”

As for consumer lending, the financial situation for the average U.S. household is still quite restricted because of the debt-to-income ratio and the amount of income available to service this debt.

“The fact is, consumers are still facing a tough road and high debt levels,” he said.

But the latest data show that prime mortgages are “starting to pick up.” Tax breaks and stimulus packages have lowered the risk involved and increased supply and demand.

Consumers who have a good job and good credit and have been “waiting for housing prices to bottom out,” will miss one of the best affordability opportunities if they don’t buy soon.

“Who knows how long the low interest rates and (simultaneous) low housing prices will last?” Karp asked. “Short-term conditions favor Colorado more than many other states — and long-term (prognosis) for Colorado is one of the best in the nation.”

In the state, payroll is better, the housing bubble not as big and commercial real estate pressures are much lower than elsewhere.

For example, the structural industrial shifts in Michigan and Ohio are deeper and take much longer to recover from.

Compared to “what we had in Colorado, absorbing housing and real estate adjustments — once you get done with that — it’s over with,” Karp said. “We’re not where we were before the crisis, but the state is outperforming the U.S. average. So that makes a huge difference in consumer confidence.”

Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.