Colorado to Join Nation in Recession in 2009, CU-Boulder Economic Forecast Predicts

December 8, 2008

Colorado will join the rest of the nation in recession in 2009, losing jobs for the third time this decade, and for only the seventh time since records have been kept beginning in 1939, according to national economist Richard Wobbekind of the University of Colorado at Boulder's Leeds School of Business.

Wobbekind's announcement was part of the 44th annual Business Economic Outlook Forum hosted Dec. 8 by CU-Boulder's Leeds School of Business and BBVA Compass bank.

"The national economy is in a recession and we don't know how long it is going to last or how deep it is going to go," Wobbekind said. "That fact is very unsettling to the person on the street and has dramatically affected consumer and business confidence."

Low consumer confidence, coupled with the credit and housing crises as well as stock market instability point to a gloomy economic picture for Colorado in 2009.

"We're expecting Colorado to lose about 4,000 jobs overall in 2009, which is not a large number, but it is negative, and this is in the context of having very few years where we've lost jobs in this state," Wobbekind said.

Wobbekind said this is the worst national recession he has seen since he started preparing the Leeds School's annual Economic Outlook Forum in the late 1980s. So far the recessions of 1987-88 and 2002-03 were harder on Colorado than the current one, but he said the most important question for the Colorado economy is how long the national economic downturn lasts.

"We're just starting to go into negative territory in Colorado, so the question is when does it end?" Wobbekind said. "I speak about the U.S. economy all the time and when people ask 'Can the U.S. economy survive and remain globally competitive?' I

always respond that the two reasons it will survive are entrepreneurship and great financial markets. Well one of those two things isn't working right now. We don't have great financial markets, and nothing can slow down an economy faster and more dramatically than bad credit."

The best-case scenario for Colorado coming out of the recession hinges on national forecasts that predict a mild recovery in the third quarter of 2009, according to Wobbekind. If those forecasts are accurate Colorado would experience a similar recovery, meaning job losses in the state for the first half of 2009 and then positive job growth in the latter part of the year, leading to a near-zero growth year or slightly positive growth.

The worst-case scenario for Colorado would again hinge on the national economy and would occur if the financial policies put in place by the government fail to get the economy back on track and credit markets remain dysfunctional for a prolonged period, Wobbekind said. If it is a long-term bailout process, job losses could continue in Colorado through 2009 and even into 2010.

"If there is a silver lining to take from the recession, it's not a very visible one," Wobbekind said. "However, I think what an economic downturn does is it helps people figure out how to manage their businesses better, and it also helps people become more keen on how they market their products. I think you learn a lot as a business person during an economic downturn."

Colorado's unemployment rate for 2009 is expected to increase from 5.5 percent at the end of 2008 to 6.5 percent, compared to a projected national unemployment rate of 7.5 percent.

While most sectors in the state will shed jobs in 2009, Wobbekind projects that the natural resources and mining, education and health services and government sectors are probably in the best position to weather the recession.

"While slowing somewhat due to the uncertainty of energy prices, the natural resources and mining sector continues to have some growth in certain areas of the state, particularly on the Western Slope," Wobbekind said.

The education and health services sector has been short of workers for the past several years, and Wobbekind said the sector will continue to grow even in the downturn. The growth in the government sector is directly related to population growth in the state. Colorado will add another 98,100 people in 2009, bringing the total population to approximately 5.1 million, up from about 4.2 million in 1999.

The professional and business services sector, home to many high-paying jobs including engineers, computer systems designers and scientific research and development groups, will add 3,500 jobs in 2009, a far cry from the 16,100 jobs the

sector added in 2007.

Construction will lead the state in job losses in 2009 by shedding about 11,200 jobs.

"This sector has held up remarkably well in Colorado, given that our housing market has been in trouble for quite a few years, yet we've still managed to have decent construction employment," Wobbekind said. "But that was being fueled by commercial and industrial building which is taking a direct hit from the national credit crunch. A lot of businesses are putting expansion plans on hold."

The trade, transportation and utilities sector, which is the largest employer in the state and includes the retail industry, will shed 4,800 jobs. Weak retail sales also are forecast for 2009.

Manufacturing, while shedding jobs again in 2009, has some bright spots, Wobbekind said. Since 1999, the sector has lost nearly 43,000 jobs, with another 1,000 expected to be lost in 2009.

"Overall this area probably won't fall much further, and we are also hearing more companies saying they are pulling back manufacturing to the U.S. where the transportation costs are less significant," Wobbekind said. "While we never expect to see the number of manufacturing jobs that we had 10 years ago in the state, we're hopeful that the job loss will come to an end and the employment level will stabilize."

University of Colorado at Boulder

Leeds School of Business

Sector Highlights for 2009 Economic Outlook Forum

Dec. 8, 2008

Agriculture - Despite record total cash receipts of nearly $7.6 billion, net income for the agriculture sector in 2008 is expected to fall sharply from the 2007 all-time high of $1.5 billion to $968.6 million. Net income for 2009 is forecast to be down slightly, to $963 million. Most of the nearly 35 percent decline can be attributed to surging expenses for feedstuffs, fuel, fertilizer, seed and higher land costs. Net income from the livestock sector, Colorado's largest agricultural sector, will fall from $4.23 billion in 2008 to $4.16 billion in 2009. The state's dairy industry continues to grow robustly, with the herd size in the state expanding 30 percent in the past five years, in part because Colorado's cows produce about 10 percent more milk per year compared to the national average. Colorado's corn industry is at the center of the "food or fuel" debate. Ethanol production has created new demand for corn, while increasing input costs and squeezing profitability for the cattle industry and ethanol producers. Corn prices for 2009 will remain high but well below 2008 record levels.

Natural Resources and Mining - Colorado's energy sector will continue to grow in 2009, but will do so at a slower rate as the global economic slowdown curbs demand. About 3,000 workers will be added in 2009, down from the 4,700 added in 2008. The total value of oil, gas and carbon dioxide production and coal and mineral mining in Colorado is forecast to be worth $12.1 billion in 2009, down from $14.8 billion in 2008.

Construction - Segments of the construction industry have been in decline since 2005. Until recently, solid non-residential and non-building construction has somewhat offset sharp declines in residential building. The total value of construction in Colorado dropped more than 28 percent from 2007 to 2008, and will fall another 12 percent from 2008 to 2009, going from $9.9 billion to $8.7 billion. Overall, the sector is expected to lose 11,200 jobs for a total of 149,400 employed in 2009.

Manufacturing - Colorado's manufacturing sector will employ 143,500 people in 2009, and represents 6.4 percent of the value of all goods and services produced in the state, totaling $15.2 billion. Manufacturing employment in Colorado has slid each year since 2001 due to productivity gains, outsourcing and facilities shifting offshore. On the non-durable side, printing and publishing will see slight declines, while the beverage industry will remain flat. Food manufacturing may be squeezed if the rising dollar decreases demand for exports. Significant losses will again be registered in the computer and electronics sector. Three of the four major sectors, including transportation (aerospace), will register increases.

Trade, Transportation and Utilities - Colorado's largest job-producing sector will lose jobs in 2009 for the first time since 2003, shedding 4,800 jobs for a total employment of 428,700 people in the state. Retail jobs will lead the sector in jobs lost in 2009, with 2,500 jobs. Retail sales will climb 1 percent, the fifth time this decade for negative real growth. Taxes from retail sales are a primary source of income for many of Colorado's municipalities. On the transportation side, slight declines are expected as airlines reduce capacity and business travel slows.

Information - After adding jobs in 2007 for only the second time in a decade, the information sector lost 800 jobs in 2008 and is expected to lose another 1,400 high-paying jobs in 2009. Publishing firms are reinventing themselves on an ongoing basis as consumers continue their relentless march away from traditional print products toward electronic products and the Internet. Although the software sector is growing nationally, it is declining in Colorado, in part due to efficiency gains. After massive layoffs in the first half of the decade, it appears telecom employment has stabilized at about 29,000 workers. The projected decline in 2009 is a function of general economic conditions rather than continued change in the structure of the industry.

Financial Activities - The financial activities supersector is made up of two sectors, finance and insurance; and real estate and rental and leasing. While most sectors were declining, the financial activities supersector actually added employees during the 2001 recession. The creative financing opportunities that are causing angst today generated new jobs at the start of the decade. In 2009, financial activities employment will lose 2,900 jobs. On a positive note, credit unions have benefited from the turmoil in the financial industry, as they are perceived as a safe place for investing cash. In 2009, employment in the finance and insurance sector will decline further, dropping 2,800 jobs, while the real estate and rental and leasing sector is expected to lose about 100 jobs.

Professional and Business Services - The professional and business services sector, home to many high-paying jobs including engineers, computer systems designers and scientific research and development groups will add 3,500 jobs in 2009, a far cry from 16,100 jobs the sector added in 2007. Growth in the sector is important because of its close ties to Colorado's research universities, federal labs and high-tech business clusters. In September 2008, NASA selected CU-Boulder's Laboratory for Atmospheric and Space Physics to lead a $485 million orbiting space mission slated to launch in 2013 to probe Mars' climate.

Educational and Health Care Services - This sector has enjoyed job growth during every year in the last decade, and that will continue in 2009 with the addition of 7,000 jobs, despite limitations on the supply side. The educational services sector will add 800 jobs, while the health care services area will add 6,200 positions.

Leisure and Hospitality - After four years of strong economic activity and employment growth, the outlook this year is for a slower year in tourism, as the sector will lose 1,900 jobs in 2009. On a positive note, if lower fuel prices hold through next summer, more tourists will likely visit state and national parks. Good snow trumps a bad economy, so Colorado ski areas will record more than 12 million skiers for the fourth-consecutive year if Mother Nature cooperates. Although proceeds from casinos tumbled by 11 percent in 2008, voters allowed local communities to establish betting limits, which may boost future proceeds.

Other Services - This sector, which is composed of private businesses that provide personal services such as auto repair shops, Laundromats and beauty salons, is expected to add 1,000 jobs in 2009. Grant-making, religious and nonprofit organizations account for half of the sector's jobs. This sector has added jobs every year since 1990.

Government - As a result of Colorado's growing population, the government sector is expected to add 4,400 jobs in 2009. The number of federal government jobs will remain flat in 2009, with most of the increases occurring in local education.

International Trade - Colorado exports recorded a welcome turnaround in 2008, driven by a weaker dollar, the reopening of beef markets, strong increases in print machinery and robust commodity exports, such as mineral fuels and molybdenum. Growth in these areas more than offset declines caused by the closing or relocation of high-tech facilities. Fourteen of the state's top 20 exports are manufactured goods. Colorado's top manufacturing exports, excluding computer and electronic components, will show double-digit growth this year, paralleling the national trend. Exports are expected to decrease 3 percent in 2009, following an increase of 5 percent in 2008.

For regional and area economic forecast highlights or to view the entire forecast visit leeds.colorado.edu/outlook/.

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