Economic growth is expected to slow in Colorado as low commodity prices hamper the energy and agriculture industries. But gains in other sectors coupled with an increasing population mean the state should continue to fare well overall in the coming year.
“Colorado retains all the necessary ingredients of a high-performing economy, including strong population growth, a highly educated work force and a diverse industry mix,” according to a report prepared by Wells Fargo Securities.
Mark Vitner, a senior economist with Wells Fargo Securities, and Misa Batcheller, an economic analyst, compiled a report detailing the contrasts between two trends. Lower oil and natural gas prices likely will prompt more cutbacks in the energy industry even as lower wheat and cattle prices effect the agriculture industry. But continued gains in a large and diverse work force will offset those losses. Increases in population and housing prices also bode well.
The new year is off to an “inauspicious” start, Vitner and Batcheller said, with oil prices moving lower and concerns over the Chinese economy leading to volatility in global financial markets.
Colorado ranks seventh among the 50 states for oil production and ninth for oil and natural gas-related employment. Consequently, lower prices have led to layoffs in the energy sector as well as manufacturing tied to the oil and gas industry.
Prices for other commodities, including wheat and cattle, also have tumbled as a result of slowing growth in China and other emerging economies and a comparatively strong U.S. dollar.
Meanwhile, though, job growth should continue in other sectors, Vitner and Batcheller said. The largest payroll increases over the past year have occurred in the leisure and hospitality, construction and education and health services sectors.
“Colorado’s large and diverse employment base has successfully diluted the losses arising from energy related industries. We do not expect job growth to return to the 3.5 percent pace experienced earlier in the expansion, but gains should remain solidly positive and match or exceed growth in the nation as a whole,” Vitner and Batcheller said.
The Colorado economy has further benefited from population growth that’s included an influx of young and educated workers. Colorado added more than 100,000 residents during 2015, the largest annual increase since 2000. The 1.9 percent population increase constituted the second fastest rate in the United States and was more than double the 0.8 percent national average.
The Denver metro area, which has become an increasingly popular place to live for members of the Millennial generation who prefer an urban lifestyle, ranked sixth nationally in 2014 for domestic migration.
Young workers moving to Colorado also tend to be college educated. Colorado now ranks second nationally for educational attainment with more than 38 percent of the population holding bachelor’s degrees or higher. An educated work force in turn attracts employees in many fields, Vitner and Batcheller said.
Home prices, particularly in the Denver area, have increased along with demand. Vitner and Batcheller cited research conducted by CoreLogic that found that home prices in Colorado have appreciated 10.4 percent over the past year, the fastest pace of any state. Home prices statewide have climbed 22.4 percent above prerecession peaks.
Demand for apartments in Denver remains strong as well, Vitner and Batcheller said. If the 8,000 units scheduled for construction in 2015 were completed, that would mark the highest level of multifamily construction since 2003 and second-highest level since 1980. The market for office and industrial space in Denver has been healthy as well, they said.
Overall, Vitner and Batcheller said they expect the Colorado economy to continue to grow in 2016, albeit more modestly.
“The state will likely endure additional cutbacks in the energy, agriculture and mining sectors as they all adjust to lower commodity prices. The global turmoil and commodity price rout have done little, however, to diminish Colorado’s status as a great place to live and do business.”