Economic outlook: Colorado economy strong, but slower growth could be coming in 2019

DENVER — After the Great Recession, the Colorado economy has roared back to life, growing stronger and more diverse. That strength continued in 2018 and is expected to do the same — but likely at a slower pace — in 2019, according to the latest Colorado Business Economic Outlook.

The 54th annual report, compiled by the University of Colorado Business Research Division of the Leeds School of Business, examines recent economic trends and offers a glimpse at what may be in store for the coming year.

Nationally, real gross domestic product grew for a ninth straight year in 2018, according to the report. GDP was up an estimated 2.9 percent in 2018.

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Employment growth across the country was also strong. Labor participation was up, and unemployment dropped to 3.7 percent.

However the Colorado Business Economic Outlook notes that the lion’s share of economic growth occurred early in 2018 and slowed in the second half of the year.

Real GDP growth exceeded 4 percent in the second quarter of 2018. That growth is expected to slow to about 2.7 percent in 2019, according to the report. Factors such as the temporary benefits of tax cuts, tense trading relationships with countries such as China and higher interest rate are likely to contribute to slower growth.

Colorado ranked sixth in the nation in GDP growth — 3.5 percent — during the second quarter of 2018.

The state also had the sixth-best jobs growth rate in the country at 2.2 percent in 2017, according to the report.

That pace has accelerated in 2018. Colorado has added 65,000 jobs this year, up 2.4 percent. All of Colorado’s metropolitan statistical areas — Denver, Boulder, Fort Collins, Greeley, Colorado Springs, Pueblo and Grand Junction — experienced job growth.

Next year, the report estimates that about 53,000 jobs will be added to the economy, which will be enough to make Colorado a top-10 state for employment growth. The Northern Colorado region is expected to be the state leader for growth.

Sectors expected to be job-growth leaders in 2019 are professional and business services (11,400 jobs); trade, transportation, and utilities (8,700); and leisure and hospitality (7,500).

Agriculture

Despite the strength of Colorado’s economy, the report notes several challenges facing agricultural industries. Those include rising interest rates and increased feed, fertilizer, fuel

and labor costs.

Income for farmers in expected to reach its lowest mark since 2002 this year. Incomes are likely to bounce back slightly in 2019, according to the report.

Natural resources

In 2018, the oil industry is expected to see production totals valued at about $9.9 billion, an estimated 62 percent higher than 2017.

Next year, production totals are expected to remain the same or decline slightly.

After the failure of oil and gas-related ballot measures Proposition 112 and Amendment 74, “discussion regarding appropriate setback distances and competing land-use interests will no doubt continue into 2019,” the outlook said.

Renewable-energy sources — wind, solar, hydroelectric, geothermal, and

biomass — accounted for more than 22 percent of electricity production in 2017, up five percentage points.

“Colorado’s windy plains, high mountains and rivers, active subsurface heat flow, and abundant sunshine give it a high potential for renewable energy growth,” according to the report.

Construction

Despite a tight labor market and higher costs, constructions activity was up in 2018. That trend is expected to continue in 2019.

Statewide construction activity will total about $21.2 billion this year and could jump to about $21.6 billion next year.

Construction employment is expected to increase almost 3 percent to approximately 176,800 workers in 2019, according to the report.

Manufacturing

Manufacturing in Colorado was a $24.3 billion industry in 2017, representing more than 7 percent of the state’s nominal GDP. Colorado, while not one of the biggest manufacturing states, has been a recent leader in growth. or value of all goods and services produced in the state.

Five sectors make up Colorado’s manufacturing economy: computer and electronic products, food, beverage and tobacco products, miscellaneous manufacturing, chemical products, and

fabricated metal products.

Overall, manufacturing employment in Colorado is expected to grow about 1.2 percent in 2019.

Financial activities

Two sectors — finance/insurance and real estate — make up Colorado’s financial activities industry, which accounts for more than 6 percent of the state’s employment.

While the industry has been growing since the recession, that growth has slowed in the past three years. Growth in 2019 is expected to be around 1 percent, according to the outlook.

In the real estate subsector, some have expressed concerns that there’s a bubble forming, particularly in the Denver area market.

“The data do not suggest that a bubble is forming; rather, it suggests that Denver will continue to experience appreciation, albeit at a slower rate based on four metrics: supply and demand, number of days on the market, months of inventory, and affordability,” according to the outlook.

In the metro area, real estate is expected to appreciate at about 5 or 6 percent in 2019.

“Foundationally, the strong economy will support banking, insurance, and real estate employment,” the report concludes.

Health care

The health-care and social-assistance sector is a “major contributor” to Colorado’s economy, accounting for 293,300 jobs in 2017.

That employment figure grew by 1.9 percent in 2018 and is expected to expand by another 1.8 percent in 2019, according to the report.

Despite the growth, concerns — chiefly regarding affordability — persist within the industry.

“Pharmacy and hospital cost trends continue as key factors associated with rising costs and questions of affordability,” the report said. “ … The shortage in home health workers is another trend that will have long-term impacts on affordability.”

Leisure and hospitality

One of out of every eight jobs in Colorado is in one of these industries, which has grown by a third since the end of the recession.

Tourism is a critical contributor to the state’s tax base, accounting for $1.28 billion in state and local tax revenues in 2017. One of the reasons why these revenues are so important is because they are visitors to the state. Without tourism dollars, every Coloradoan would be on the hook for about $228 in additional annual taxes, according to the report.

One of Colorado’s biggest tourism and hospitality strengths is the popularity of outdoor recreation. The industry generated $62.5 billion in economic output during 2017 and accounted for 511,000 jobs.