Vectra Bank Colorado hosted its annual Economic Forecast Update breakfast on Wednesday at The Broadmoor’s International Center.
As usual, the forum — which featured economists Richard Wobbekind of the University of Colorado Boulder and Phyllis Resnick of the Colorado Futures Center at Colorado State University — attracted more than 200 business owners and community leaders. Vectra Executive Vice President and Community Bank Director Shawn Cole introduced the speakers.
Wobbekind began with an overview of the national economy, which he expects will see 3 to 3.5 percent gross domestic product growth this year.
Five to seven years for recovery from a deep recession is not unusual, he said. Although real estate, mutual funds and corporate equities were “badly damaged” in 2008 and 2009, all three have been growing, increasing household wealth steadily since then — which increases consumer confidence.
This year and next, business fixed investments are expected to see more than 5 percent growth as “corporations have easy access to capital … and high levels of confidence.” Housing prices also will continue to boost economic growth.
“As we look at the long wave of history, from 1981 forward, while [housing prices] aren’t as good [now] as the last two years, it’s still incredibly affordable — compared to the long run … combined with rising income, we haven’t seen affordability at this level in [decades]” Wobbekind said.
Still, he doesn’t expect housing construction to return to normal until 2016.
The federal deficit, on the other hand, will continue to decline until about 2019, then begin increasing again, due to more people collecting Social Security.
In summary for national news, Wobbekind and Vectra forecast GDP will grow as the year progresses, housing is in recovery, balance sheets are getting stronger, consumers are staying in the marketplace — “although the last two months make that more questionable” — fiscal drag will continue but becomes a smaller issue, tapering will continue as the Federal Reserve purchases fewer bonds each month, inflation will remain low and stable, and the “dark cloud” is federal government finance.
Regionally, with ongoing net migration, Colorado is “probably the strongest-growing state in the West” and one of the fastest-growing states in the country, with 83 percent of the population in 12 Front Range counties, including El Paso County.
Since the beginning of the century, this year is the second-strongest, behind 2013, for employment growth in the state, with a projected 61,300 workers being added. Per capita income in Colorado is $45,775, compared to $43,735 nationally, and about $41,500 in Colorado Springs.
Foreclosure sales in El Paso County show a “positive trend, going down fairly significantly year over year,” he said.
Statewide, new entity filings soared: “New business filings have been going gangbusters,” Wobbekind said.
Ironically, Federal Reserve Policy has turned out to be somewhat good for state government, with revenues (temporarily) stronger coming out of the recession than expected, Resnick said.
However, one of the biggest issues facing Colorado is the continued degradation of sales tax revenue. As Resnick explained, for the first time in history, the second largest household debt item (behind mortgages, naturally) is student loans, the “only source of debt that continued to grow during the recession.”
An entire generation emerging from college, heavily in debt, continues “having a hard time getting on the career ladder,” she said.
Generation Y maintains vastly different consumption patterns than previous generations.
“They don’t even want to buy a car (much less a house) — they ride-share, taking up parking meter spaces … with these matchbox cars,” Resnick said, while the audience laughed. “They don’t want to stay in nice hotels … they think swapping is cool and couch surfing is [fine]. They don’t want to behave the way previous generations behaved.”
Needless to say, “these basement dwellers don’t spend as much money [as the rest of us do],” Resnick said. Despite the humor, the economic repercussions will be enormous.
Sales tax revenue will continue to decline, leaving governments to slash more programs and funding, for infrastructure, K-12 education and more.
In addition, the broader economy has shifted steadily from consuming goods to consuming services, with the “double whammy” of Baby Boomers and Gen Y buying fewer goods.
Meanwhile, the rest who do buy homes tend not to buy lawn mowers and other landscaping items — instead they hire someone to cut grass or trim trees. Nail and hair salons have clients lined up waiting for services, while pet-grooming businesses are flourishing.
A solution lies, Resnik said, in reducing the state sales tax — wait for it! — yet broadening the base to include sales tax on personal and household services (but not, for instance, on accounting or attorney services) and online goods, in reflection of the changing economy.
Much better than the alternative of crumbling infrastructure and totally defunded higher education.