Economist Projects Colorado to Follow National Economy into a
Period of Slower Growth and Recession; State Unemployment Rate to Rise with Slowing Job Growth
DENVER--(BUSINESS WIRE)--Sept. 11, 2007--Colorado's economy will
mirror national trends in 2008, as a mild to deep recession will be
linked to rising interest rates, falling housing prices and stagnant
job growth, according to the U.S. Bank 2008 Economic Forecast,
prepared by Tucker Hart Adams, Ph.D., U.S. Bank's Rocky Mountain
Region chief economist.
"Falling home prices, stagnant income growth with a smaller
percentage of the population in the labor force, high levels of debt
and rising mortgage payments add to the stress American consumers are
under," Adams writes in the annual forecast. "Consumers hold the key
to the economic outlook for 2008."
The level of recession felt nationally will depend on how quickly
current turmoil in the financial markets can be resolved, according to
Adams' forecast. "The odds of a deep versus a mild recession are about
equal, with very little chance of escaping a downturn altogether in
the next 18 months," Adams writes. However, Adams predicts that as
Colorado has not had as much speculative home-price appreciation when
compared to other areas of the U.S., the recession should not be as
deeply felt in Colorado.
Nationally, annual U.S. output growth is expected to slow to 1.5
percent, which combines 2007 and 2008 growth predictions, due to
uncertainty about the exact timing of the recession within this
24-month period, according to Adams' forecast. This includes an
estimated 0.5 percent output growth in 2008 due to recession-backed
financial market corrections. However, due to strong economies in
Europe and Asia, a bright spot on the national economic horizon will
be an expansion of the U.S. industrial sector in 2008. Consumer
confidence was reported at a six-year high in 2007, but Adams writes,
"However, it is interesting to note that the previous high was
attained in August, 2001, five months into the last recession." The
recent decline in new construction starts will improve nationally in
2008, with permits down 1.4 percent, after a reduction of 22.8 percent
The national unemployment rate will rise to 5.0 percent in 2008,
after averaging 4.9 percent in 2007. Adams notes that "inflation and
interest rates are the most difficult call in this uncertain
environment" and forecasts consumer inflation will average 3.0 percent
for the year, up slightly from 2007. The Federal Reserve will be slow
to move short-term interest rates "unless there is a serious need for
global liquidity," Adams' forecast states. Conventional 30-year
mortgages will average 6.9 percent in 2008, up from 6.5 percent in
2007, as mortgage credit becomes more expensive and difficult to
obtain. Interest rates for 90-day Treasury bills will average 4.8
percent, following a 4.7 percent rate in 2007.
In Colorado, aside from an energy boom on the Western Slope and
north central Colorado counties, and agricultural counties involved
with a corn-for-ethanol boom, state economic growth was sluggish in
2007 and will follow the lead of the national economy in 2008.
Population growth will be 2.1 percent in 2008, as the state will
surpass the five million resident mark.
State employment growth will slow to 0.5 percent, or 11,500 jobs,
after a 1.5 percent gain, or 35,000 jobs in 2007. The state
unemployment rate will also increase to average 4.8 percent as the
recession deepens, according to Adams. Adams' forecast calls for per
capita personal income to rise by 2.9 percent to $41,976, which is
below the Metro Denver inflation rate of 3.1 percent.
The worst effects of the housing recession will have passed by
2008, Adams predicts, but housing permits will fall another 7.1
percent. Adams notes that "with fewer houses, there will be less need
for new retail centers and rising office vacancy rates will discourage
new office construction."
Adams forecast calls for a reduction in spending by consumers, due
to a lack of growth in personal income and rising mortgage payments
from changes with adjustable rate mortgage products. Total retail
sales in the state will increase by 3.9 percent in 2008, down from a
gain of 7.6 percent in 2007.
Additionally, Adams notes a "conundrum" exists when considering
the best indicator of the health of the national and state economies -
job growth. From 2003 through 2006, the economy created approximately
half the number of new jobs of previous job growth periods in the
1980's and 90's, yet unemployment figures remain relatively low. Adams
notes that there are many theories of why this puzzling situation
exists, including distortion of employment data and undocumented
workers. Adams writes that job growth figures, therefore, may not be
as strong as reported and could be a factor in leading the economy
into the predicted recession in the near future.
U.S. Bank has 135 branches and more than 250 ATMs in Colorado.
U.S. Bancorp (NYSE:USB), with assets of $223 billion, is the 6th
largest commercial bank in the United States. The company operates
2,499 banking offices and 4,867 ATMs, and provides a comprehensive
line of banking, brokerage, insurance, investment, mortgage, trust and
payment services products to consumers, businesses and institutions.
U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on
the web at www.usbank.com.
The economic forecast will be published on www.ColoradoEconomy.com
at 8 a.m. MT, Tuesday, Sept. 11.
CONTACT: U.S. Bank
Tucker Hart Adams, Ph.D., 303-570-1361 - Direct
U.S. Bank Economist
303-329-9218 - Cell
Carrie Warren, 303-585-4114 - Direct
SOURCE: U.S. Bank