Date: 07/08/2009
Final
Update on the U.S. and Colorado Economy
INTERIM COMMISSION TO STUDY FISCAL STABILITY
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03:39 PM -- Update on the U.S. and Colorado Economy
The commission reconvened.
Mr. Richard Wobbekind, representing the Leeds School of Business, commented on his economic views and stated the importance of the commission's charge regarding the long term fiscal stability of the state. The commission received a copy of his presentation (Attachment A). A copy is also available on the commission's website.
Mr. Wobbekind stated that he would present some of the difficult scenarios that exist. Mr. Wobbekind commented on the instability of the state's revenue streams and the idea of cost containment in regard to state spending. He noted that his forecast differs slightly from the Legislative Council Staff forecast.
03:44 PM
Mr. Wobbekind explained that the gross domestic product (GDP) is currently turning and therefore he believes the recession is ending in this current quarter, with GDP pulling up. He suggested the year 2010 will not show strong growth, employment will lag, and the access to capital is near stagnant which will negatively affect small business and entrepreneurs. Mr. Wobbekind stated the national economy went into a recession in December 2007 and Colorado followed with a lag. He suggested the "economic scorecard" shows there are still some questionable banks and housing slump issues, but Colorado is standing slightly better than the nation. The weakest part of the economy right now is the consumer. Income and consumption has been slow for the nation over the last decade, which has led to slow personal consumption. Housing prices in Colorado have not dropped as much as in other parts of the nation. Mr. Wobbekind further explained the drop in consumer confidence with this recession but suggested it is now improving. In addition, business fixed investment appears to be turning positive. The manufacturing index, which had trended downward since 2004, has now turned and may be in a growth mode. The United State's housing supply had been falling but houses are finally starting to move in the market.
03:53 PM
The presentation moved to the federal budget. Mr. Wobbekind stated the U.S. Treasury Secretary does not appear to be convincing the world that the stimulus is working. Therefore, convincing the public that an additional stimulus package would be helpful seems unlikely. He suggested interest rates will stay low, according to the Federal Reserve, and that short term rates will increase only marginally but noted commodity prices need to increase. Colorado's commodity prices need to stabilize but are rather volatile and economic recovery would be more favored by stable prices. He stated Colorado population growth has slowed due to less migration into the state. Overall population growth is at 1.4 percent. He further explained that nonfarm employment has been decreasing in 2009 where over this period in 2008 and 2007 it had increased over the first half of the year. Employment growth by region shows only Grand Junction with positive growth. Rural Colorado has been hit hard with this recession, with tourism and natural resources hit hard and only government, education, health, and mining having added jobs. All other industries have lost jobs including industries such as professional business services and construction.
04:03 PM
Mr. Wobbekind suggested jobless claims is the closest real-time data on the economy, though he suggested using caution on looking at one week of data at a time. He stated the trend shows magnitudes of increases in claims unlike what Colorado has ever seen. Yet while Colorado will grow slow, Moody's Corporation expects the state to be one of the leaders in economic recovery. Mr. Wobbekind suggested the inflation rate should stay low for a couple years then start increasing. He further explained the property tax base has been stable and foreclosures by county are not widespread.
04:12 PM
Commission discussion ensued about foreclosures and property values and the possibility of a second surge of foreclosures. Mr. Wobbekind suggested there is a possibility, especially nationally. He stated locally, Colorado may be affected by the loss of homes from lost jobs more than from mortgage restructure. The commission asked about commercial loans and the effects of inflation. Mr. Wobbekind stated bankers are worried about the existing loans and other things that can still derail commercial loans. He suggested having confidence in the U.S. Federal Reserve Chairman's leadership and believes the Federal Reserve will begin to accept slightly higher inflation rates in order to avoid deflation. Other questions related to the agriculture economy in regard to the escalation of costs of production and the closure of New Frontier. Mr. Wobbekind believes the dairy industry will take a hit due to insufficient funding. He closed by stating that other indicators seem mixed, with livestock and crops looking better.