Economic leaders are taking stock of the Colorado economy and finding some hope among the negative impacts of COVID-19 and the resulting stay-at-home order.
Data for March shows a steep downturn for the state’s economy, says Dr. Richard Wobbekind, senior economist and associate dean of CU Boulder Leeds Business Research Division.
“In a presentation last year, I made the mistake of saying that the economy was on really sound footing and the only thing that could really affect us was a black swan event,” says Wobbekind in a recent virtual presentation.
A “black swan event” is an unforeseen catastrophic occurrence that shuts down all of business very quickly, like the pandemic has done. It’s like a Katrina-level hurricane that hits the entire nation.
“But unlike a natural disaster, our physical infrastructure and economy remain intact; the physical spaces are still there and do not need to be rebuilt,” explains Wobbekind.
While it’s challenging to model this unprecedented event, CU-Boulder economists draw on extensive data and key indicators to illustrate what has been learned so far, and where Colorado’s economy may be headed for the next couple of quarters.
“We need to focus on how to keep business and government infrastructure in place to maximize recovery,” he says.
Fortunately, Colorado entered the COVID-19 crisis with a strong economy. With a tight labor market, the state economy led the nation for growth and is No. 3 in the U.S. for jobs recovery since the Great Recession, reports Brian Lewandowski, executive director of CU Boulder Leeds Business Research Division.
As recently as February, the unemployment rate was 2.5 percent, its lowest since the latter 1960s, notes Lewandowski.
But then came the pandemic, which started a cascade of job losses. Initial statewide jobless claims spiked from below 3,000 to 60,784 claims for the week ending March 28.
While the average salary in Colorado is $61,200, the hardest hit are in low wage jobs, especially in three industries that employ a large number of Coloradoans:
-Retail trade, transportation (public and airline), utilities
-Leisure and hospitality such as ski, golf, pro sports, performing arts, gaming, fitness, hotels, restaurants, bars
-Natural Resources and Mining, impacted because of sharp downturn in oil and gas prices
Nationwide jobless claims skyrocketed to 3.2 million—the worst in history. But the situation is dramatically different than that of the Great Recession and depending on the coronavirus, the drop probably will not last as long.
As Wobbekind looks at today’s forecasted gross domestic product (GDP) growth, he anticipates a 25-30% drop in the third quarter and growth in quarter four. In 2021 projected GDP growth is 3%.
But he points out that China—with a COVID-19 timetable that precedes that of the U.S.—is already in recovery with a positive GDP projected in quarter two. If the U.S. were on China’s timetable, “our recovery would start in May, if we’re optimistic. But we’re not likely to be on as quick a recovery path as China,” says Wobbekind.
While Colorado is overexposed to the downturn in some areas, the state is well-positioned in others:
-Colorado’s rate of confirmed COVID-19 cases has slowed.
-Consumer confidence is more optimistic than business confidence, which is the basis for consumer spending.
-If people have the funds to purchase larger ticket items, interest rates are low.
-Dramatic federal spending recently increased including the $2 trillion stimulus, which helps people in the short run although it adds to an already large federal deficit.
-Unemployment payments have doubled.
-Federal policies passed in the CARE Act help mitigate economic impacts.
-Many Coloradoans are employed in business and professional services, which can be done remotely and are higher paying and strong in the long run.
“The majority of Coloradoans still have their jobs and they tend to be higher paying jobs,” observes Lewandowski.
Wobbekind points to expected demand that will spur spending when stay at home orders are lifted and the economy gets its footing. He anticipates seeing a recovery start in mid-May or June.
Watch the full presentation at: youtube.com/watch?v=6E1U3BL1BUE&feature=youtu.be
By Tom Kalinski. Tom is the broker/owner of RE/MAX of Boulder, the local residential real estate company he established in 1977. He was inducted into Boulder County’s Business Hall of Fame in 2016 and has a 40-year background in commercial and residential real estate. For questions, e-mail Tom at [email protected], call 303.441.5620 or visit boulderco.com.