Midyear economic report: Springs’ rebound under way

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By Rebecca Tonn, Amy Gillentine and Becky Hurley

It might not feel like it for everyone, but the local economy is definitely up.

The Southern Colorado Economic Forum’s Business Conditions Index, established in 2001, stood at 80.31 in May, compared to the 73.43 posted in May 2009 and the low of 68.26 seen in February 2009.

The BCI is based on the El Paso County employment rate, city sales and use-tax collections, new-car registrations and other indicators.

Fred Crowley, senior economist for the forum and a UCCS College of Business instructor, said that, in light of the improving data, the region’s jobs picture should continue to brighten.

Overall, the county has been faring better than the nation in terms of unemployment. Nationally the unemployment rate stood at 9.5 percent in July, while El Paso’s was hovering at 8.6 percent. Employers in the county, he said, have added 4,500 jobs this year.

Perhaps one of the most telling signs of economic improvement is that consumers are spending again.

As of May, sales tax collections were up 8 percent year-to-date in the city, and new-car sales were up 8.5 percent. Not only that, but people are buying more expensive cars than a year ago.

All in all, the local economy is in recovery, he said, although people on Main Street are seldom convinced that life has returned to normal until they see friends and family employed again.

Typically, that’s the last thing that happens in a recovery, he said.

“I have no reason to believe there will be a weak sector in the (county’s) economy for the rest of the year,” Crowley said.

Unemployment rate for El Paso County, seasonally adjusted
January 8.1%
February 8.33%
March 8.33%
April 8.63%
May 8.61%
June 8.68%

Here’s a closer look at five sectors:

Aerospace

The technical and professional industries that include aerospace and defense contractors offer one of the brightest spots in Colorado Springs’ economy.

Employment in aerospace and defense increased last year and continued to do so in the first six months of this year, Crowley said.

“Over time, it’s really grown for us,” he said. “We have between 75,000 and 80,000 jobs (in the sector) — it’s the largest primary employment area in the city.”

The job growth in those realms leads to positive results in other areas as well, he said.

“I think the uptick in the (hotel) lodging rate is from business travelers coming here for the defense and aerospace sectors, not from tourism,” Crowley said. “And that’s what you want — a sector that creates other jobs.”

Colorado Springs would do well to recruit more of these businesses, Crowley said.

But that’s easier said than done.

The aerospace industry has hit the pause button as Congress and the Obama administration hammer out the details of what happens next in space and defense.

“There’s a pivotal pause that only comes once a generation,” said Brendan Curry, vice president of Washington operations for the Springs-based Space Foundation. “The unfortunate thing about that pause is that it leaves the men and women — smart men and women — in the lurch.”

Many of those men and women are in Colorado Springs, working on the Constellation project, a manned spacecraft designed to go to the moon and authorized by former President George W. Bush. Obama has canceled the program, which is centered in Denver, but Congress passed a bill keeping it in place.

“They’re testing, working on design,” Curry said. “But it could be for nothing. It’s going to be difficult going forward, until people know for sure what’s going to happen.”

With November elections looming, any decision could be put off until 2011.

Tourism

Tourism in the Springs today is not the booming business it was several years ago, but the industry has been staging a comeback this year.

One of the strongest months so far this year was May, when Lodgers and Automobile Rental Tax collections skyrocketed 17 percent. Year-to-date, LART is up nearly 5 percent over last year.

The hospitality sector has added 400 to 500 jobs since winter, though the net number of jobs is still down from a year ago, said Crowley. Seasonally adjusted, however, hiring in the tourism industry is trending upward.

Likewise, hotel occupancy is beginning to rise again, and room rates are comparable to last year — although rates are still down dramatically from 2007 and 2008 levels.

Occupancy is expected to hover around 59 percent for the year. Year-to-date, it’s 57.7 percent, according to the June issue of the Rocky Mountain Lodging Report.

“People are feeling more comfortable with travel, and business meetings are recovering,” said Chelsy Murphy, spokeswoman for the Colorado Springs Convention and Visitors Bureau.

One of the best indicators of summer travel is the Fourth of July weekend. The Pikes Peak Country Attractions Association said its members reported increases ranging from 2 percent to nearly 22 percent over the Fourth.

That bodes well for the rest of summer, especially because several members said it was one of the best holiday weekends they’ve had since 2007.

Business travel remains an issue for most, however.

Interestingly, the Broadmoor hotel said it is having a record year for “social” travel. Part of that is because it has “more rooms at the inn,” said John Washko, vice president of sales and marketing for hotel.

“Historically, we’ve had a number of blackout days due to meetings and conventions,” he said. But less corporate business means there’s been more availability for leisure travelers.

And this year the resort has done more marketing to the leisure sector than it has before.

In group and leisure business, the Broadmoor is 8 percent above its budget.

“There’s still a lot of uncertainly in the economy — and uncertainty doesn’t play well for businesses,” Washko said. “Eventually, though, businesses that are waiting for the clouds to part will realize they have to start driving forward and do what they have to do to be successful. And a big part of that is meeting face-to-face.”

At the Cheyenne Mountain Resort, leisure and convention business have both been strong. Year-to-date, the resort is 6 percent or more above its projections.

Not that it is overly sanguine about the balance of the year.

“The economy is still not firing on all cylinders. There will be sporadic ups and downs for the rest of the year (in the hospitality industry),” said John Branciforte, vice president of marketing for Cheyenne.

Corporate business is “heavily influenced by speculation (of the financial and political markets) in Europe. Many people want to feel better about the global economy (before spending),” he said. “Although it hasn’t returned yet to predictability, we’re seeing a resurgence of short-term corporate bookings, which had been gone for awhile.”

That said, corporate bookings at the resort are “through the roof” for October and November.

Occupancy rates in Colorado Springs
January 44%
February 48.1%
March 51.7%
April 56%
May 68.1%
June 77.7%

Real Estate

After more than three years of discouraging existing-home sales and forecasts, the first half of 2010 finally brought a few glimmers of hope.

Today, not only is the Pikes Peak housing market approaching a new equilibrium (the point at which supply begins to meet demand), but residential real estate values and sales are on the rise. Moreover, foreclosures appear to be on the way down.

“Back in November 2008, I announced that the market had bottomed out at a Realtor’s meeting. Nobody in the room believed me then. But looking back, that was the bottom,” said UCCS Associate Research Professor Fred Crowley.

Crowley has good reason to be upbeat, based on data from the Pikes Peak Association of Realtors:

The dollar value of all Pikes Peak region homes sold through June was up 19 percent, amounting to $890 million.

The number of units sold was up 12 percent for the period, totaling 4,361.

Median selling price was up more than 5 percent, rising to $205,000.

Sellers are encouraged by the trends. Home listings in June in the region rose to 5,950 compared to about 4,400 in June of 2009 — a sign that sellers who had waited on the sidelines are beginning to re-enter the market.

Joe Clement, the owner of one of the ReMax Properties franchises in the Springs, said his operation is unquestionably seeing more business.

“It’s all good. You still have to qualify and have that old-fashioned thing — a job — but home prices are creeping up,” he said.

Moreover, more higher-priced homes are finding buyers, too.

“A year ago, homes priced from $150,000 to $250,000 were about all that was moving. Now we’re starting to get contracts up ub the $500s,” he said.

Casting a cloud over matters: the expiration of a much-ballyhooed real estate tax credit at the end of April and worries of double-dip in the economy.

Indeed, this week, the U.S. Census Bureau said single-family housing starts in June fell by 0.7 percent, and some markets across the country reported rising inventories of unsold homes.

Low interest rates, however, offer yet another counterbalance.

Clement tries to take a realistic viewpoint.

“We’ve been spoiled with (interest) rates in the 4s and 5s,” he said. “They won’t last forever.”

Single family/Patio home sales closed
January 440
February 526
March 723
April 792
May 888
June 913

Health Care

The region’s two hospital networks — Memorial Health System and Penrose St. Francis Health Services — both found themselves overbuilt and over-staffed last year, a situation that led to a correction in the local health care market that is still ongoing.

“Who knew that building two new hospitals at the same time, very close to each other, and opening them at the same time would lead to an over-expansion of the market?” Crowley asked. “Just about everybody — but the hospital administrators themselves.”

He was referring to Memorial North, which opened in mid-2008 less than five miles from St. Francis Hospital, which opened in November of that year.

This year, after various rounds of cuts, the hospitals have been keeping their belts tight as they wait to see how health care reform shakes out. Uncertainty about reimbursement rates means hospital budgets need to be more flexible than ever.

That means managing costs, in part by cutting hours for some employees.

“The emergency rooms at both new hospitals aren’t really performing at the levels they thought they would,” Crowley said. “They built the hospitals there because of the demographic — people (in north Colorado Springs) have more money to spend. But people aren’t using the hospitals the way they thought they would.”

Instead of using an ER, as patients without insurance are wont to do, people with insurance tend to see their primary-care physicians.

Looking ahead, the two hospital systems might have cut back for now, Crowley said, but the future looks bright. Reform legislation means more people with insurance, which means more money coming in the door.

“The baby boomer generation is also getting older, and that’s going to mean significant jobs in health care to take care of them,” he said. “(People also) are living longer, so there’s going to be increased need for health care for a very long time.”

Retail

Pikes Peak retailers saw greener, more profitable pastures in the first half of 2010 and are hoping for more of the same for the rest of the year.

A stabilizing retail sector generated a steady increase in area tax revenue, which has meant a $600,000 surplus in city funds.

City sales tax receipts were up 6.22 percent so far this year compared to last. Use taxes paid by business for equipment and supplies were also up 29.1 percent year-to-date. Both categories, however, were still off more than $3 million from pre-recessionary levels, according to the city’s finance department.

Still, after two years of a recessionary economy, 2010 has been a whole lot kinder to retailers.

The biggest winners have been companies that cater to homeowners — especially those that help furnish, equip and beautify the homes purchased this year under the Home Buyer Tax Credit, said Crowley.

“(New homeowners) want a new couch for the new house, a new TV. It’s that momentum that creates sales-tax increases,” Crowley said.

“Retailers in these categories should continue to see good activity through the rest of the year,” he said.

Locals are also buying new cars (sales were up about 14 percent over the same period last year), and the cars they’re buying are more expensive, based on more than an 8 percent increase in car-registration revenue.

Pikes Peak Acura General Sales Manager Leif Clinard said that while business is still off about 30 percent from two or three years ago, he believes the economy will continue to pick up.

“We sell about 160 cars a month today; a couple of years ago it was more like 200 or 225 a month,” he said. “I think people are still pinching their pennies. We’ve done a lot of lease buyouts and re-financing this year.”

Restaurants, meanwhile, remained a “soft sector,” Crowley said, generating sales tax revenue that was up just 2.8 percent as prospective home buyers appear to be opting to save for a mortgage over going out to dinner.

The deployment of 5,000 troops from Fort Carson later this year could slow retail sales a bit, though USA Discounter General Manager Homer Haley isn’t overly worried.

His store, just outside Fort Carson in the Mission Trace Shopping Center, sells everything from furniture to jewelry, electronics and tires, mostly to military families.

“We’re already well above our projections for the year. And while the soldiers are gone, their families still shop. We don’t anticipate it being devastating,” Haley said.

Monthly Sales Tax Collections
Receipts Percent Over (Under) Previous Year
January $11,096, 351 6.2%
February $7,797,383 4.74%
March $8,052,452 3.38%
April $9,145,714 5.46%
May $8,263,458 10.22%
June $8,979,702 7.16%
TOTAL $41,430,417 6.22%