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Despite many hurdles, Colorado’s economy should plow ahead in 2024, forecast says

Commercial real estate poses a risk to forecasts, and workers should expect a softer labor market
Colorado Springs Scenery

Unemployment is rising but still historically low, jobs remain plentiful in most industries, wages are up and the economy has withstood blow after blow without rolling over. So why does a sense of gloom pervade about where the economy is at and where it is headed?

Blame inflation and high housing costs for the sense of malaise, said Henry Sobanet, chief financial officer and senior vice chancellor for administration and government relations at the Colorado State University Systems, at the 2024 Economic Forecast hosted by Vectra Bank in Denver on Thursday.


“People feel like their dollar is not going as far as it used to,” said Sobanet, a longtime student of the Colorado economy at both the Colorado Legislative Council and the Governor’s Office of State Planning and Budgeting.


There is also a sense that the state might be entering a different era. Between 1990 and 2020, Colorado enjoyed job gains and population gains topping 70% versus increases nationally that ran closer to 30%. Colorado’s didn’t just run ahead of the rest of the country, it lapped it.


Most of those gains, however, were front-loaded in the first two decades when resources like water and developable land were more abundant, housing costs were lower and the state was perceived as being more business-friendly, Sobanet said.


Growth slowed last decade, even if it didn’t feel like it, and this decade it has come to a virtual standstill. Long accustomed to being an economic leader, Colorado found itself in the uncomfortable spot of being a laggard last year.


“What we had that drove this (growth) might not still be here,” Sobanet said.


Yet, the Colorado economy continues to chug along, despite higher interest rates and inflation, supply chain disruptions, labor shortages, the tech slowdown, and relatively high housing costs.


The ColoradoCast for the first quarter from the Colorado Futures Center at CSU predicts the Colorado economy will continue to grow modestly this year, about 2%, and gain momentum in the coming months.


Slower job gains in 2023 in Colorado indicate that the state is now underperforming the U.S. economy. But after struggling last year, the housing market is showing signs of rebounding.


“If housing in the early part of 2024 continues to regain momentum, the economy can be expected to continue to maintain strength into the year,” according to the report.


Nick Sly, vice president and Denver Branch Executive with the Federal Reserve Bank of Kansas City, noted at the Vectra forecast lunch that inflationary pressures are easing in several areas and that the once tight labor market is loosening.


Fed surveys of employers in Colorado, New Mexico and Wyoming, found that a smaller share, 25% at the end of 2023 versus 60% in 2022, plan wage hikes in the next 12 months. Fewer are looking to expand their workforce and about a fifth of respondents said they plan to shrink it.


A gap has also emerged between growth in hourly earnings and weekly earnings, Sly said, as employers switch away from offering overtime hours and shift more employees to part-time work.


Commercial real estate (CRE) poses one of the greatest risks to continued growth in the U.S. economy this year, Sly said, before unveiling a new CRE index for the region that the Federal Reserve Bank of Kansas City has developed.

The value of the index fell from -0.8 in the third quarter to -1.3 in the fourth, with a reading of zero indicating activity that matches historical norms. The index got as low as -2.5 during the financial crisis in 2008 and took a hit early in the pandemic before rebounding.


The index covers office buildings, which facing unprecedented weakness; apartments, which are peaking out; retail space and hotels, which have rebounded since the pandemic and industrial, which remains strong but is slowing.


As office leases roll over, tenants are leaving or asking for less space and demanding lower lease rates, which is putting additional pressure on landlords. Local and regional banks have a heavier concentration of CRE loans in their portfolios than the large national banks, which leaves them vulnerable as well.


DENVER, CO - NOVEMBER 8:  Aldo Svaldi - Staff portraits at the Denver Post studio.  (Photo by Eric Lutzens/The Denver Post)