Phil Castle, The Business Times
While the state economy has expanded at more than twice the pace of the national economy, an economist expects growth to slow to Colorado.
The national outlook remains modest with slow growth, but continued gains in the labor and housing markets.
Low oil prices and slowing growth in China have ramifications for Colorado and the United States, said Mark Vitner, a senior economist and managing director with Wells Fargo Securities.
Vitner shared his views about the state and national economies during a conference call.
Gross state product grew at an annual rate of 4.7 percent in Colorado in 2014, more than double the 2.2 percent gain in U.S. gross domestic product, Vitner said. But that pace likely won’t continue, he added. “I suspect growth has slowed fairly considerably this year.”
The slowing comes despite broad-based job growth in Colorado. Job gains have been spread out among a number of industry sectors, Vitner said, including construction, but also the leisure and hospitality and education and health services sectors. The growing aerospace industry in Colorado has helped to bolster payrolls as well. Only the information sector, which includes telecommunications and software development, has shed jobs over the past year.
But overall job growth is moderating, Vitner said. “It’ll be less this year than it was last year.”
Increased energy exploration and production in Colorado, Oklahoma, North Dakota and Texas accounted for a third of growth in U.S. GDP in the five years following the recession, Vitner said.
But there’s been a sharp decline in the number of active drilling rigs in the United States as oil prices have plummeted from above $100 a barrel to $40 a barrel, Vitner said. Prices could slip as much as $10 a barrel lower before bottoming out, he added.
The energy sector accounts for 2.9 percent of gross state product in Colorado, but has produced a boom in some parts of the state, Weld County in particular. Moreover, Denver serves as a regional hub for energy companies, Vitner said.
Residential construction continues to increase in Colorado even as home prices continues to rise, Vitner said. But gains likely will slow, he added.
The tourism industry remains “very strong,” he said, with record visitors and spending in 2014.
The value of agricultural exports from Colorado soared more than 60 percent to nearly $84 million in 2014 due to bountiful wheat and corn harvests and high prices. While the outlook remains good for crops, lower ag prices likely will pull down export values this year, Vitner said.
As for the U.S. economy, Vitner described his overall outlook this way: “We see the economy as solid, but unspectacular going forward.”
Inventory building bolstered GDP growth during the first half of the year, but will reduce growth in the third quarter.
The labor market has improved over the past five years with an average monthly gain of 246,000 net new jobs over the past year. The unemployment rate has dropped to 5.3 percent, its lowest level since April 2008.
With increased hiring for full-time positions, full-time employment has finally return to prerecession levels, he said. An increase in hours for part-time workers also has helped to bolster income.
An improving labor market has led to an improving housing market with increases in existing and new home sales, Vitner said. Single-family housing starts are beginning to ramp up, and residential construction will play a bigger role in the economy.
At the same time, though, Vitner said he’s worried about the effects of slowing growth in China that curbs the sale of commodities, products and services to that country, Vitner said.
There are suspicions the Chinese showdown has been “much more dramatic” than what government numbers for GDP indicate, Vitner said, adding that he’s more concerned than other economists about the ramifications for the United States.