Colorado’s economy will be “running on all cylinders,” according to economist Patricia Silverstein of Development Research Partners.
That was the rosy outlook at Vectra Bank Colorado’s recent economic forecast event. Economists discussed growth, doing business in a changing political and economic climate, investment considerations, interest rate hikes and the growth of the gross domestic product.
Silverstein cited the importance of attracting top talent to the state, as housing prices continue to rise. Currently, Colorado ranks 16th in the nation for housing costs. She said businesses will need to watch their staffing needs and could increase both compensation and benefits to attract top talent.
Generation X is spending the most dollars and driving economic activity, she said. As Millennials come into their own — around ages 35-55 — they will play a larger role in economic activity.
But it’s not all good news. Silverstein also thinks inflation will reach 3 percent in 2017, “taking a bigger bite out of our income this year.”
Silverstein again expects Colorado to rank in the top 10 states for employment in 2017. While growth has been slow for some areas in Colorado, like Grand Junction, all areas of the state saw expansion.
“Every single industry expanded in the metro Denver region,” said Silverstein in a Vectra Bank press release detailing the forum’s top talking points. “This was the fourth year that we’ve seen growth in the state’s super sectors. In fact, all sectors have enjoyed growth at historic rates.”
The state’s high employment numbers don’t include the state’s sole proprietors or startup population, which make up about 25 percent of Colorado’s workforce. Colorado ranks fifth in the nation for the highest concentration of sole proprietors.
Other economists focused on the national forecast and investing. Last year, Burt White, managing director of research and CIO for LPL Financial, predicted a 70 percent chance of recession, which did not materialize.
But White classified the current economy as “the worst recovery ever,” and cited a rate of 2 percent growth in GDP. However, the GDP in the third quarter was 3.5 percent. Fourth quarter and yearlong estimates are not yet available, according to the Bureau of Labor Statistics.
He also criticized the Federal Reserve’s decision to hold interest rates low, saying that they were positive for borrowers, but made it difficult to increase savings. He noted that the average number of interest rate hikes following a recession is 16, and that the lowest number of increases in history was 10. Interest rates following the last recession are at 2 percent. At three increases per year average since the recession, that rate will take nearly five years to get back to a healthy GDP, he said.
“We receive two times more interest in savings as when we pay interest,” said White. “[Lack of interest on savings] hurts the people who need it the most.”
White predicts 2.5 to 3 percent growth in 2017 and earnings in the mid single-digit or high single-digit earnings and return.
Contrary to what economists thought would happen, when interest rates were at the bottom, spending went down and people saved more. In 1980 a person needed $763,395 to have $100,000 in interest income for retirement. By 2000, a person needed $2 million and today an investor needs $14 million to make $100,000 from interest income on savings.
White also urged attendees to invest in stocks, even in the current bull market. He told attendees that stock ownership is lower than ever, with only 52 percent of consumers invested in stocks, but 49 percent of people playing the lottery, according to the press release.
While the pro-growth promise of the new Trump administration has potential for the country, White cautioned that it’s excesses that cause recessions.
“It ain’t over until ‘overs’ are everywhere … over-borrow, over-hire, over-spend, over-leverage,” said White in the press release. “We were over extended and over in 2009. Today, we don’t see overs, but a pro-growth agenda could also create too many overs that could drive another recession.”