Colorado economy starting to wobble as momentum slows

Colorado’s economy is still growing, but it is losing momentum, leaving it vulnerable to outside shocks and a recession later this year, according to the latest ColoradoCast from Colorado State University.

“I wouldn’t say this one right now is a recession forecast, but the risk of having a recession has increased with this one,” said Phyllis Resnick, executive director and lead economist at CSU’s Colorado Futures Center, which prepares the short-term outlook.

Although still holding its own, the Colorado economy is much less resilient than it was last year. An economy growing at 3% or 4% a year can better withstand an outside shock, say from a disruptive war or an unexpected wave of bank failures, than one that is closer to stalling, Resnick said.

The ColoradoCast looks at six indicators — home prices, temporary employment hiring, stock market performance, yield spreads, the premium for risky corporate bonds, and initial unemployment insurance claims — to determine where the economy is headed over the next six months. Late last year, the model was showing continued but slower growth.

The first-quarter report is showing an annual growth rate near zero or below zero through August, at which point positive growth is expected to resume. But like a top losing its spin, the economy is in a more precarious spot and could more easily topple over into a recession.

“My gut is telling me if we had a recession, it would be mild, not severe, based on the way the economy has been performing,” Resnick said.

If the surprises are on the upside, then a recession might be avoided. But right now the odds seem more in favor of surprises on the downside, she said.

One surprise came Friday when the state reported a loss of 4,700 nonfarm jobs in March. Although revisions next month could improve that, the drop was big enough to rank as the worst monthly loss in the state since December 2020. And it was large enough to put Colorado among only four states to have a net loss of jobs so far this year.

On the upside, the housing market is showing some strength. Home prices in metro Denver were down 0.9% between December and January, but they were up 0.8% between January and February, one of the strongest monthly gains among 20 metro areas tracked in the S&P CoreLogic Case-Shiller Home Price Indices.

Permits for single-family homes, an important contributor to economic growth, are also down sharply in most Colorado metro areas, according to a separate study from Point2, a provider of real estate news and analysis. Metro Denver suffered a nearly 22% drop in home permits last year. Pueblo was down 33%, Grand Junction 21.3% and Fort Collins 19.4%. Boulder and Greeley bucked the trend and saw housing permit activity rise.

Colorado continues to rank as a top 10 state for home construction activity and Colorado Springs ranked seventh among medium-sized metros for the number of permits pulled last year, even after a 6% decline. Nationally, home permits surprised on the upside in March, raising hopes for a rebound in home construction, an important source of employment and spending in the larger economy.

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