Job, population growth to continue in 2018

DENVER — Colorado will stay competitive in recruiting, and every major sector will add jobs in 2018, according to economist Richard Wobbekind.

Wobbekind, executive director of the Business Research Division at the University of Colorado Boulder Leeds School of Business, is forecasting that Colorado will  add 47,100 jobs in 2018, an increase of 1.8 percent — a lower growth rate than the past two years.

“The national unemployment numbers are low, but the state unemployment numbers are incredibly low,” Wobbekind said during a recent forecast presentation.

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Low unemployment rates are causing employers to continue to deal with a talent shortage — creating good news for workers as the low unemployment numbers should lead to increasing wages across a variety of sectors, Wobbekind said.

But, the labor shortage may lead businesses to replace workers with machines or other technology, according to the report.

The population will grow 90,600, Wobbekind said, as people continue to move to Colorado. 

Wobbekind said Boulder County continues to outperform the state with a highly educated workforce, a high quality of life and a world-class research university.

In Northern Colorado, Wobbekind said Larimer and Weld counties are more attractive than ever because of a highly educated workforce and growing technology and entrepreneurship sectors. He said Weld County continues to be a leader in agriculture production exports.

Last month, the Federal Reserve raised a key short-term U.S. interest rate to a range of 1.25 percent to 1.5 percent, but in a sign of caution the central bank stuck to its earlier forecast for just three 1/4-point rate hikes in 2018.

The Fed made no change to its inflation forecast, reflecting the persistent worry among some senior officials that price pressures could remain unusually soft despite the tightest labor market in almost two decades.

The central bank did raise its gross domestic product forecast for 2018 to 2.5 percent from 2.1 percent, indicating the Fed expects federal tax cuts to boost the economy next year. The bank also predicted unemployment would average 3.9 percent in both 2018 and 2019, down from the current 4.1 percent rate.

Agriculture

It is difficult to predict what changes will come about due to current economic challenges in agriculture, but there will be adjustments in rural communities as farmers consider their options after multiple years of declining cash prices for wheat and corn.

High crop yields are little consolation when the price farmers receive is less than the cost of growing them, according to The Leeds School of Business’ 2018 economic outlook for the state.

There likely will be additional farm consolidation and loss of business in the rural communities that support the farm economy. Colorado’s 2017 total agricultural income was lower than in 2016. The decline was not as steep as expected; however, profitability is highly concentrated among only a few sectors of Colorado’s diverse food and agriculture value chain, most notably, cattle feeders.

Net farm income for 2017 is expected to fall to $1.16 billion from $1.23 billion in 2016. An expected revision of 2017 farm production expenses by the USDA’s Economic Research Service may drive this even lower.

Looking ahead to 2018, cattle, corn and wheat producers can look forward to marginal increases in net income, mostly driven by small price increases or production gains. Projected net farm income is expected to climb slightly to $1.37 billion, a level still well off the record high of $1.84 billion recorded in 2011.

Banking

The current makeup of banks operating in Colorado consists of roughly 55 percent of deposits residing in the four largest banks. In this context, deposits can serve as a rough proxy for loans, too. Conversely, community banks with less than $100 million face a situation where those 55 banks collectively hold $3.1 billion in deposits.

Many Colorado bankers say that loan demand is solid, especially among the most creditworthy borrowers with equity to fund new ventures.

Bolstered by rising home values and one of the lowest unemployment rates in the nation, Colorado’s not-for-profit credit unions experienced double-digit asset, loan, and savings growth during the 12-month period ending June 2017, as well as strong membership growth and earnings.

Credit Union National Association economists expect the strong Colorado credit union performance to continue into 2018 as the U.S. economy shows growth in GDP, stock market and housing wealth increases, and as employment grows.

Oil and gas

Colorado’s total oil production was valued just above $5.5 billion in 2017. The value of state’s natural gas production is estimated to be around $5 billion. This represents a 15.3 percent increase in gross value of oil and gas from 2016. Assuming energy prices see a modest improvement in 2017, Colorado natural gas and crude oil are expected to have a 6 percent to 9 percent increase in valuation in 2018.

Manufacturing

Manufacturing in Colorado is a $23 billion industry, representing about 7 percent of the state’s GDP or the value of all goods and services produced in the state in 2016. Colorado was home to more than 5,700 manufacturing establishments employing 144,000 workers in 2017, which represented 5.4 percent of the total employment base in the state, a slight uptick in total employment year-over-year with 1.1 percent growth forecast for 2018.

Commercial Real Estate

The Northern Colorado commercial real estate market shows solid fundamentals. Northern Colorado is experiencing a growing population and job growth. Industries showing strongest growth include agriculture, technology, research and development, and health care.

The Group Inc. based in Fort Collins, reports that Weld County is No. 1 in Colorado for overall business growth, and Windsor is especially inviting for distribution facilities.

Commercial vacancy rates tightened overall for industrial, retail and office properties located in Fort Collins, Greeley and Loveland between December 2016 and June 2017. Commercial net absorption was positive, and rents steadily increased. With continued population and job growth, the trend is expected to continue in 2018.

Residential Real Estate

Home mortgage rates remain at all time lows, still hovering around 4 percent, but they are expected to increase in the coming year.

The Federal Reserve increased the short-term interest rate in 2017 and is projecting it will raise it three more times in the coming year that would affect mortgage rates.

Jay Kalinski, a broker/owner of Re/Max of Boulder, predicts that while sellers have been the primary beneficiaries of the real estate market since the recovery of the Great Recession, 2018 will finally see buyers in a stronger position. Kalinski expects appreciation of home prices in the region’s priciest market — Boulder —

will increase 5 percent, a slower pace than recent years, and a tight inventory will begin to loosen up a bit.

The recently passed major tax-reform bill, may affect certain Colorado property owners — allowable write offs for real estate taxes is capped at $10,000 per year, which should not affect many Colorado owners due to the state’s low tax structure, but interest deduction on a second home is no longer allowed, which could affect residents who have second homes.

Cannabis

The Cannabis Business Alliance believes newly revised medical and retail rules that have been proposed by the Marijuana Enforcement Division are likely to spur efforts toward creating a more efficient and innovative cannabis industry in 2018.

Cultivators and manufacturers in Colorado are now required to test cannabis at a much higher rate than before. As a result, business revenue will suffer by losing a great volume of product through minimum sample weights and increased sample sizes should the regulations not be amended.

As a fledgling industry, the specifications and regulatory codes regarding cannabis will continue to be examined in 2018 by the state’s Department of Regulatory Agencies as part of its Sunset Review on retail marijuana. The 70/30 rule is scheduled to be reviewed in 2018. The rule, implemented in 2011, requires producers of medical marijuana to grow at least 70 percent of  the product they sell. Though intended to reduce black-market activity, the regulation complicates business operations for small companies and those without cultivation centers.