Colorado update: Payroll gain revised upward, but challenges remain

Richard Wobbekind

Phil Castle, The Business Times

Brian Lewandowski

Colorado employment is expected to grow even more than initially forecast in 2022 even as rising inflation and interest rates present economic headwinds to businesses.

Nonfarm payrolls are expected to grow 104,000 in 2022, according to a midyear update to the Colorado Business Economic Outlook. That’s 30,000 more than what was projected when the report was published in December.

“The forecast has improved markedly,” said Brian Lewandowski, executive director of the business research division at the Leeds School of Business at the University of Colorado at Boulder.

But even as Colorado outperforms other states in rebounding from the COVID-19 pandemic, other challenges remain. Inflation has climbed to its highest level in 40 years, and the Federal Reserve has responded by increasing short-term interest rates. Supply chain issues persist, and the war in Ukraine also has exerted effects.

“The risk of recession is growing,” Lewandowski said. A recession could start later in 2022 or early in 2023, but likely will be short and shallow, he said.

The division compiles an annual business and economic forecast for Colorado. The leaders of 14 committees involved in the forecast met in June to update the report.

Lewandowski and Rich Wobbekind, senior economist and faculty director of the division, discussed the results during an online media briefing.

Over the past two years, private sector payrolls in Colorado increased 414,000, more than offsetting jobs lost in early 2020 because of the pandemic and related restrictions.

As of May, the latest month for which estimates are available, nonfarm payrolls had increased 124,600 over the past year, a gain of 4.6 percent.

All 12 industry sectors experienced year-over-year gains in employment — including a 7 percent gain in professional and business services, 5 percent gain in construction and 4 percent gain in manufacturing. Employment in eight of the sectors exceeded levels in January 2020, before the onset of the pandemic in the United States.

Employment grew the most — 12 percent — in leisure and hospitality. But the sector was hit hardest by the pandemic and related restrictions, and employment remains 2 percent below January 2020 levels.

Given what’s foreseen as slowing employment growth in the third quarter and little to no growth in the fourth quarter, Colorado might have already created the additional 30,000 jobs projected for 2022, Wobbekind said.

Colorado fares well nationally for a number of metrics, ranking second for labor force participation rate, personal income growth and per capita personal income growth as well as third for average hourly wage growth.

But economic headwinds persist, Lewandowski said.

The Consumer Price Index, a broad measure of the price of everyday goods and services related to the cost of living, was up 9.1 percent in June compared to the same month a year ago. That was the biggest year-over-year gain since 1981.

The CPI for the Denver-Aurora and Lakewood area increased 8.3 percent in May compared to the same month a year ago.

The rising prices of gasoline, food and other goods and services have outpaced wage growth, Lewandowski said. Many individuals don’t feel better off.

In an effort to curb inflation, the Federal Reserve increased its short-term interest rate three-quarters of a point in June. Some expect the Fed to raise the rate a full point when it meets July 26 and 27.

Loan rates have increased in turn, making financing more expensive. 

Wobbekind said homeowners with mortgages with fixed interest rates at what were historically low levels don’t pay more.  But those considering buying homes will. Rental rates have increased as well.

Lewandowski said rising interest rates could slow real estate activity as well as affect the financial activities sector. Ultimately, home construction could slow as well.

Business leaders in Colorado and small business owners nationwide have grown increasingly pessimistic.

The Leeds Business Confidence Index fell 12.8 points to 41.1 for the third quarter, the fifth-lowest reading in history. Individual readings for each of six metrics the index tracks also slipped below 50, reflecting more negative than positive responses. The index is based on the results of quarterly surveys of business leaders across Colorado and industry sectors.

The National Federation of Independent Business reported its Small Business Optimism Index dropped 3.6 points to 89.5 in June. The index has remained below its historical average of 98 for six consecutive months.

The portion of those who responded to the survey upon which the June index was based who expect the economy improve over the next six months dropped seven points between May and June to net negative 61 percent. That’s the lowest reading in the 48-year history of the index.

The 16-page update to the Colorado Business Economic Outlook for 2022 is available online at