Strong long-term prospects will support a solid recovery for Metro Denver’s economy

Colorado’s economy continues to weaken as the near-term outlook for global demand and business activity remains poor. Even so, strong long-term prospects for many of the state’s key industries, a talented workforce, and a reputation for innovation will support a solid recovery for the regional economy, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for January 2009.

While President-elect Obama unveiled plans for the largest infrastructure development program since the construction of the nation’s interstate highways, economic stimulus strategies are also emerging in Colorado. Denver Mayor John Hickenlooper recently announced plans to advance the timeline on several voter-approved infrastructure projects. The projects would be finished over the next three to four years with an estimated economic impact of $200 million each year. An improvement project for Boettcher Concert Hall is one of the largest currently under consideration.

Colorado Governor Bill Ritter also introduced an economic stimulus package in December. The four pieces of legislation would give payroll tax credits to companies that add at least 20 jobs and would improve loan access for expanding businesses. In addition, the legislation would increase worker training and development incentives in the renewable energy sector. Overall, the package would cost $4.9 million not including funds for the job creation incentive.

“With Colorado gaining even more momentum as the fifth-fastest growing state in the nation and a top region for business growth, it’s essential we offer incentives and support for growth and development,” stated Patty Silverstein, chief economist for the Metro Denver EDC.

The region’s reputation won recent attention in a MarketWatch ranking of the best locations for businesses placing Metro Denver third among the nation’s 50 largest metro areas. Criteria for the ranking included population growth, job growth and unemployment, and the number of companies listed among the Fortune 1000, S&P 500, and Russell 2000. Minneapolis-St. Paul and Boston claimed the first- and second-place ranks, respectively.

Colorado and Metro Denver also have other advantages in the current downturn, including a milder-than-average housing correction. The Metro Denver foreclosure indicator, for example, was one of three indicators to move positively both in monthly and annual terms in this report.

Metro Denver foreclosure filings in November fell below the count for the same month in 2007, as was the case for the prior six months. Public trustees reported 1,728 new filings in November, which left total filings through the first 11 months of 2008 down 3.4 percent from filings for the same period in 2007.

The S&P/Case-Shiller Home Price Indices show home prices falling at record annual rates in 14 of 20 U.S. metro areas. The indices show October 2008 home prices declining from the prior year by anywhere from three percent in Dallas to more than 30 percent in San Francisco, Las Vegas, and Phoenix. Local home price conditions are somewhat better, though. The Denver index fell 5.2 percent over-the-year in October and ranked third behind Dallas and Charlotte for smallest annual price decline.

Overall, five indicators moved in a positive monthly direction, compared to one indicator in the prior release. Four indicators moved in a positive annual direction both in this report and the prior two reports.

The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.

Key points from this month's report include:

Labor and Employment

• While the national employment picture has darkened considerably with year-to-date employment down by 0.1 percent, local labor markets have so far experienced a milder contraction. Metro Denver employers cut 2,200 jobs between October and November, which left the region’s year-to-date job growth rate at 1.2 percent. November over-the-year growth rates were negative in each of Metro Denver’s 11 industry supersectors except education and health services, leisure and hospitality, other services, and government. These rates suggest that job growth has slowed across most sectors of Metro Denver’s economy, with the strongest contraction currently in natural resources and mining, manufacturing, and transportation, warehousing, and utilities. Even with the weaker trends, though, total November job counts in Metro Denver and Colorado were slightly above last year’s levels.
  
  
• The results of the most recent Manpower Employment Outlook Survey suggest that many Metro Denver employers will take a wait-and-see approach to hiring in the first quarter of 2009. In the Denver-Aurora MSA, 15 percent of business respondents said they would add jobs in the first quarter, while 12 percent announced plans for layoffs and the remaining majority (70 percent) said they would leave current staff levels unchanged. In the Boulder MSA, 18 percent of respondents indicated plans to hire while 13 percent expected layoffs and 65 percent anticipated no change from current headcount. (Note: The geography and industry coding structures in the Manpower Survey changed effective with the first quarter 2009 results, and comparisons to the prior year for the Denver-Aurora and Boulder MSAs may be influenced by these changes.)
  
  
• Metro Denver and Colorado unemployment rates increased for the third consecutive month in November. Rates among the region’s seven counties ranged from 4.8 percent in Boulder County to 6.5 percent in Adams County and the City and County of Denver. Regionwide, the November unemployment rate reached 5.8 percent, which was slightly above the statewide rate but measurably below the national figure.
  
  
• Metro Denver unemployment insurance claims have increased as the labor market weakens. An average of 3,236 claims were filed each week in November, and the year-to-date average number of weekly claims rose to 1,616. Compared to the same period last year, the weekly claims has risen 41.4 percent. In Colorado, the year-to-date average number of weekly claims increased 39 percent from the average for the same months in 2007.

Consumer Sector

• Because local data on retail sales and prices are lagged several months, the impact of late-year economic turbulence on Metro Denver consumers is not yet clear. Retail sales data for September still show healthy trends, though. Through the first nine months of the year, retail sales increased in five of the seven Metro Denver counties, with the largest gains in Adams County (+15.7 percent) and the City and County of Denver (+9.4 percent). Year-to-date sales for the entire seven-county region rose 5.1 percent in September. 
  
  
• The U.S. Consumer Confidence Index fell to an all-time low in December. Analysts note that the Present Situation sub-index is now approaching levels reported during the recession of the early 1990s, but index readings are not yet as poor as they were during the recession a decade earlier. The Mountain Region consumer confidence index fell slightly below the U.S. index in December and declined 42 percent on a year-to-date basis.
  
  
• A decline in Metro Denver hotel occupancy rates between October and November is consistent with seasonal trends, although weaker travel demand is also playing a role. The region’s occupancy rate fell from 64.8 percent in October to 51.3 percent in November, and November’s rate was significantly below the 56.3 percent occupancy rate from November 2007. Overall, average monthly occupancy rates have fallen 2.6 percent through the first 11 months of 2008, while average room rates have increased 6.6 percent. 
  
  
• Passenger traffic at Denver International Airport (DIA) followed a typical seasonal pattern and increased between September and October, but the October count of passengers fell 0.1 percent below the passenger total from the previous year. Over-the-year growth in airport traffic has actually been slowing for several months as fare increases, capacity reductions, and recent economic weakness affect business and consumer travel decisions.
  
  
•  On a year-to-date basis, the NASDAQ fell 40.5 percent through December, and the S&P 500 and Dow Jones Industrial Average fell 38.5 percent and 33.8 percent, respectively. Colorado stocks fell by a larger margin, as the Bloomberg Colorado index declined 51 percent in 2008.

Residential Real Estate

• The pace of U.S. existing home sales slowed considerably between October and November, according to the National Association of Realtors (NAR). An 8.6 percent decline in November left the sales pace 10.6 percent below November 2007, and over-the-year sales declines across the U.S. ranged from a 16 percent decline in the Midwest to an 18 percent decline in the West, South, and Northeast.
  
  
• Local data also show home sales falling significantly in the late fall. The number of closed home sales in Metro Denver fell 31.8 percent between October and November, and local analysts say the November sales figure was the lowest ever reported for the month.
  
  
• On a year-to-date basis, total closed home sales in Metro Denver declined 4.2 percent through the first 11 months of the year, and the average single family home price for that period declined 12.7 percent from the average for the same months in 2007. The region’s unsold inventory continues to shrink, largely because weak economic conditions and competition from distressed properties is discouraging many homeowners who might otherwise choose to sell.
  
  
• Residential construction activity in Metro Denver continues to reflect the weak market for new homes. Local jurisdictions issued permits for 1,281 residential units in October, the vast majority of which were units in apartment buildings. Through the first 10 months of the year, building activity slowed the most (-71.7 percent) in the attached homes category, or the group that includes condominiums and townhomes. The of single-family detached home permits declined 48 percent through the 10 months ended in October, and total permits for all types of housing fell 34 percent.
  
  

Commercial Real Estate

• Data from CoStar Realty Information, Inc. suggest that Metro Denver’s office market weakened throughout 2008. The region’s direct vacancy rate increased slightly each quarter and ended the year at 12.8 percent, or one percentage point higher than the 11.8 percent rate from the fourth quarter of 2007. Slower market activity essentially reversed gains in lease rates that occurred in the second and third quarters, and average rates ended the year at $21.15 per square foot. Despite its changing fundamentals, 2008 still proved to be a year of solid office market construction activity.
  
  
• While Metro Denver’s industrial market maintained momentum through much of 2008, the market finally weakened in the fourth quarter. According to CoStar, the direct vacancy rate rose to 6.9 percent from 6.5 percent in the third quarter while average lease rates remained essentially steady at $5.13 per square foot.
  
  
• Like Metro Denver’s office market, the region’s flex market weakened throughout 2008. According to CoStar, direct vacancy rates rose from 12.1 percent in the fourth quarter of 2007 to 12.9 percent in the fourth quarter of 2008. Despite the weaker fundamentals, lease rates remained fairly steady and averaged $9.87 per square foot in the fourth quarter. Building activity also remained steady between the third and fourth quarters, with nearly 300,000 square feet in eight projects under construction as 2008 ended.
  
  
• CoStar reports that direct vacancy rates in Metro Denver’s retail market rose throughout 2008. The rate registered 8.2 percent as 2008 ended, nearly one percentage point higher than the 7.3 percent rate from the fourth quarter of 2007. Average lease rates also declined through the second half of the year, although the fourth quarter average of $17.60 per square foot remained above the $17.01 average from the fourth quarter of 2007.
  

*A full report is available to Metro Denver EDC investors.