Sep 26, 2022 - News

What to know about Colorado's "precarious" economy

Illustration of an outstretched arm holding one green and one red arrow-shaped balloon

Illustration: Sarah Grillo/Axios

Two new forecasts offer a cautionary outlook on the direction of Colorado's economy after years of sustained growth.

State of play: Greg Sobetski, the Legislature's chief economist, called the current economic landscape "precarious" in a recent presentation to lawmakers.

The state's economy is moving into a transition period, economists said.

  • For the first time in more than a decade, Colorado's economic growth is expected to plateau.
  • The state budget's discretionary spending — the bulk of tax collections — is expected to see growth near 1% for the next two years before it expands to 4% in fiscal year 2024-25.

Details: Here are three dynamics — and data points — economists for the Legislature and Gov. Jared Polis highlighted in a recent presentation:

A chart showing retail sales growth.
Image courtesy of the Office of State Planning and Budgeting

1. Risk of recession: The possibility of a recession in coming months is growing as rising interest rates and surging costs work to suppress consumer spending.

  • In terms of real growth adjusted for inflation, the Polis administration's economists expect it to dip into negative territory in 2023.
  • Colorado could fare better in a downturn because of the economy's reliance on service sectors, the governor's chief economist Bryce Cooke said.

2. Job growth will slow: The current labor market is strong, economists agree, and employment is at pre-recession levels, despite gaps for certain industries.

  • Demand for workers is expected to slow given the economic headwinds. The governor's economists expect unemployment to average 3.5% for the year, slightly better than the 3.6% U.S. rate.
  • In 2023, they believe the unemployment rate will rise to 4.3% in Colorado because of a tight labor market.
A chart showing CPI
Image courtesy of Legislative Council

3. Inflation is real: The latest data points suggest that inflation may have peaked, economist David Hansen said.

  • Home prices — which are largely driving inflation in Colorado — are expected to level off.
  • The Denver metro's rate could still exceed U.S. levels in 2023.

Yes, but: Inflation is outpacing wage growth even as employers boost salaries amid competition.

  • It's eroding consumer purchasing power, as real wages in the Denver metro declined 2.7% in August compared with the prior year. In Colorado, real wages declined 1.7%.
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