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There are legitimate reasons to worry about a recession.
Inflation is at a 40-year high and Americans are paying record-high prices for gasoline. For just about everyone, the basic cost of living has skyrocketed.
According to a recent story in The Denver Post, the typical Colorado household has spent $4,467 more per year since 2020 because of inflation. The story notes that, although labor shortages are helping push up wages, pay increases are covering less than two-thirds of the most recent price spikes. That is not a sustainable proposition for many workers.
Millions of Americans are dipping into their savings accounts to cover routine expenses such as rent, groceries and utilities.
Meanwhile, the skittish stock market has cratered and is likely to fall even farther depending on how nervous investors react to the Federal Reserve’s historic interest rate rise. Then there’s Russia’s war in Ukraine.
One good friend told me that because of the drop in his retirement account he is reevaluating whether and how he might retire. He has to decide if he will still retire in two years — and live less comfortably in retirement — or continue to work to make up the difference. Another friend, a single mother, has canceled her summer family plans and instead had to get a second job to make ends meet because her savings are now depleted.
These stories are not unique.
According to a recent poll conducted by the Colorado Health Foundation, nearly nine out of ten Colorado residents see rising living costs as an extremely or very serious problem.
Jamie Diamond, CEO of JP Morgan Chase is predicting an “economic hurricane….we just don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”
Indeed, economists predicting our economic future are no better than prognosticators opining on the outcome of the Stanley Cup Finals, which of course the Colorado Avalanche will win. They look at key economic indicators and are merely speculating based on trends and historical data.
For my money, I believe we will see an economic slowdown, but it won’t rise to the level of a recession, and Colorado will see a softer landing.
ColoradoCast’s May Report, the state’s only short-term (six-month outlook) economic forecast, predicts that Colorado’s economic growth will continue through October 2022, but at a considerably lower annual growth rate of 1.8%.
US News and World Reports ranked Colorado as the second-best economy in the country in 2021. There is still strong interest among out-of-state residents looking to move here, and our economy is much more diversified than it was during the Great Recession of 2008.
Consumer inflation in the Denver-Aurora-Lakewood area fell from a 9.1% annual rate in March to an 8.3% annual rate in May, which is lower than the national average. Thanks to a local refinery, The Denver Post reports that, while national gas prices have increased nearly 50% since May of 2021, the Denver area increase was significantly less at 33.7%.
“Colorado’s unemployment rate is extremely low at just 3.6 percent. In fact, we have the nation’s third-largest labor force participation rate at 69.1% the highest level we’ve seen since March 2012,” said, Raymond Gonzales, president of the Metro Denver Economic Development Corp who oversees 11 industry verticals in a service territory that makes up more than 75% of the state’s Gross Domestic Products.
Gonzales is concerned about the 215,000 job vacancies at the moment. He has not seen significant layoffs in the region, which would clearly forecast a stronger possibility of a recession. The bigger challenge currently is the labor shortage, with a disconnect between the supply of talent and the demand of our regional economy.
Key strategic investments recently made by Gov. Jared Polis and legislators will also fortify Colorado’s solid economic foundation through the use of federal funds received through the American Rescue Plan Act.
Colorado made strong investments in addressing our housing and homelessness crisis. After initially allocating $400 million to address this issue out of ARPA funds, Polis also signed legislation authorizing another $200 million for homeless services and recovery care.
The Innovative Housing Incentive Program funded with $40 million creates a program within the Office of Economic Development to provide grants or loans to existing businesses with fewer than 500 employees to develop new types of innovative housing, such as manufactured homes.
Legislators appropriated $600 million toward the state’s Unemployment Insurance Trust Fund and further extended unemployment provisions to help lower-wage workers and cut the wait time for people seeking unemployment benefits.
The legislature also took on our talent pipeline by passing House Bill 1350, which establishes the regional talent development initiative grant program to develop or expand talent development initiatives in identified regions of the state with $91 million. The program is intended to meet workforce development needs, create economic opportunity pathways between K-12, higher education and employment as well as meet the regional development needs. Nearly $57 million came from ARPA federal funds.
To ultimately meet this challenge, next year’s legislature would be smart to go much farther to improve housing affordability, address the talent pipeline and properly fund K-12 and higher education, but in the meantime these investments might help some bear the brunt of this economic slowdown.
Doug Friednash grew up in Denver and is a partner with the law firm Brownstein Hyatt Farber and Schreck. He is the former chief of staff for Gov. John Hickenlooper.
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