Recovery of economy a ways off, expert says

Weak energy industry, banking and commercial real estate prospects may hold Colorado back from economic recovery any time soon, according to economist Mark Snead.

Snead, the branch executive in Denver for the Federal Reserve Bank of Kansas City, spoke Tuesday evening during an economic forum at Two Rivers Convention Center. A cold winter may help natural gas prices and benefit Colorado energy companies, Snead said, but it’s unlikely the market will turn around quickly.

“There really is nothing in this data to suggest Colorado will bounce out of this quickly. In fact, (Colorado) may lag significantly,” Snead said.

Snead said he expects retail vacancy rates to continue to rise in Denver and Colorado, and that commercial construction, although on the rise since the middle of summer, has devalued significantly.

Residential real estate in Colorado, however, likely hit bottom in the spring and has been on the upswing for four or five months, Snead said. Both the number of homes selling and the prices they sell for has increased here.

Banking, meanwhile, is another story. An upswing in that sector, Snead said, will take a while. The ratio of nonperforming assets to total assets is higher in Colorado than the U.S. average. The ratio is unlikely to accelerate any more, Snead said, but it’s “still not moving in any meaningful way. You will be well behind the U.S. recovery. It’s a little depressing.”

There is hope, though. CNBC recently ranked Colorado as the third best state in the nation for doing business, and MSNBC named Colorado this summer as one of the five states most likely to experience economic recovery first.

Gov. Bill Ritter showed confidence in the state’s prospects Monday even as he commented on a budget shortfall totaling more than half a billion dollars.

“Our economy is still in better shape than many other states. Our economic-development strategy is working,” Ritter said.

Colorado has outperformed the U.S. in job growth during the past five years, but job growth in the nation has outdone the state this year.


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The recession arrived late in Denver. So will the recovery

Denver’s economic immune system was able to fend off the effects of the recession which took hold of the U.S. early in 2007 and plagued the country for almost a year.
Late in 2008, however, the Mile High City succumbed and over the past 12 months has lost jobs as fast, and indeed slightly faster, than the nation as a whole.
Across major industrial sectors, construction employment is down 15%, followed by manufacturing (-7%), trade and transportation (-5.4%), information services (-5.3%) and financial services (-4.6%).
Although Denver’s unemployment rate (7.8%) is below the national average (9.4%), retail sales in the metro area are down over 11% year to date compared to -9.1% for the country as a whole.
Residential building permits in Denver are down by 66% year to date compared to a countrywide year-to-date decline of 47%.
Looking forward, there are some large clouds on Denver’s economic horizon in the form of potential layoffs in the wake of the acquisition by Oracle of Sun Microsystems.
What’s more, the sustained drop in office-based employment over the past year will probably cause office vacancy rates in the metro area to head higher through mid-2010.

Having said this, a number of indicators suggest that economic activity in Denver will stabilize in late 2009 and begin to recover in 2010.
First, despite its current downturn, Denver is fundamentally an attractive business location in terms of workforce quality, quality of life and the cost of living and doing business.
Second, the most recent Leeds Business Confidence Index increased from 35.5 to 46.5 in the third quarter due to increases in all six of its component series. This increase was reinforced by a stronger outlook for capital spending and for employment.
Finally, according to the National Association of Realtors, existing home sales in Denver have increased for the past three months.


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