COVID casts long shadow over CU’s economic forecast

BOULDER — Like virtually every aspect of human life in 2020, the COVID-19 pandemic is casting a long shadow over attempts to project the strength — or lack thereof — of the Colorado economy moving into the new year. 

“This is a really difficult environment to do an economic forecast,” Rich Wobbekind, associate dean and economist at the University of Colorado Boulder Leeds School of Business, said last week in reference to CU’s 56th annual Business Economic Outlook. “We’re dealing with several unknowns, and these are not simple unknowns that you’d typically see when doing a forecast.”

In the longer term, economists are unsure how the pandemic and the resulting societal disruptions will impact consumer behavior.

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The first step toward offering a projection is looking back at the past year — one that’s included nine months of shutdowns and a drastic shift toward in the way Coloradans work, learn, shop and socialize. 

“After growing by 58,400 jobs (2.1%) in 2019, employment declined significantly in Colorado in 2020, with total employment year-to-date through October down 4.1% compared to the same period in 2019, or a loss of 115,100 jobs,” according to the Business Economic Outlook report.

This decline in employment is particularly significant because 2020 saw the end of the nation’s “longest economic expansion in post-WWII history, which exceeded the record set during the technology boom of the 1990s. Real gross domestic product (GDP) is estimated to have fallen 3.7% in 2020 — down from increases of 2.2% in 2019 and 3% in 2018 — marking the first annual decrease in GDP after 10 consecutive years of positive economic growth in the United States.”

Despite this tectonic shift in economic fortunes coupled with all of the unknowns, CU economists are predicting in 2021 a “real GDP growth increasing to 3.8% as the pace of the U.S. economy recovers from its largest percent decline in GDP since 1946,” the report said. “This level of U.S. GDP growth can be attributed to several factors: First, the behavior of consumers since the onset of the pandemic has led a disproportionate amount of dollars to be allocated to goods rather than services; for context, services account for nearly half of total GDP. Growth in consumer spending on services in a post-vaccine environment will likely buoy total consumer spending and aggregate GDP.”

The Business Economic Outlook offers insight into many of Colorado’s critical industries:

Agriculture

Gross farm revenue in 2020 is expected to be a bit more than $8.5 billion in 2020 and could increase to over $8.6 billion next year, CU projects. 

“Colorado agriculture was faced with bad news more often than not in 2020, lending additional brilliance to the moments of good news — great harvests and good prices for some, while others faced challenges in both areas,” according to the report. “Amid cancellations and changes, drought and fires, early snow and late freezes, Colorado agriculturalists persevered to keep Colorado citizens fed through the pandemic.”

Natural Resources and Mining

The value of the overall sector is down 40% from 2019 with “only a modest rebound expected in 2021,” according to the Business Economic Outlook.

It’s not just oil executives and company stockholders who are feeling the pressure. 

“Jobs are down more than 11% since January, with a number of companies having declared bankruptcy,” the report said. “Additionally, mergers and acquisitions activity, such as Chevron acquiring Noble Energy in July, will likely result in more layoffs in the coming months. Employment is likely to decrease further in early 2021, before potentially stabilizing in the second half of the year.”

Construction

Because the construction industry was designated an essential business, the sector was spared some of the deepest pandemic-related harm.

“Even so, divergent trends emerged,” the report said. “Single-family residential construction carried the industry in the past year, as large non-residential and non-building projects were more limited compared to prior years. Sector activity will total nearly $16.8 billion in 2020 but decrease 7.5% in 2021 to $15.5 billion.”

The construction industry is particularly vulnerable to shortages in labor, exacerbated by recent slowdowns in immigration.

Manufacturing

In recent years, Colorado has emerged as one of the county’s most diverse manufacturing economies, “bolstered by renewable energy investments, breweries, cannabis products, aerospace, and health care,” according to CU. 

“The factors that have supported Colorado’s manufacturing sector during the economic expansion continued to support the sector during the pandemic,” the Business Economic Outlook said. “From January to April, industry employment fell 12,200 jobs (8.1%) in Colorado but increased 13,600 jobs from April to October. Through October 2020, Colorado’s average employment year-to-date was down less than 1% compared with a 4.6% national contraction.”

Trade, Transportation, and Utilities

The industry, which includes wholesale trade, retail trade, utilities, warehousing, and multiple facets of transportation, will experience job losses of 10,600 in 2020, to a total of 466,800, the report said. “The sector is expected to rebound in 2021 and grow 3.1%, to total 481,500 jobs.”

The virus “has drastically altered the retail landscape while accelerating some ongoing trends. Some outlets have thrived, notably sellers of building materials, groceries, and big-box retailers along with purveyors of online sales. Grocery store sales have been strong as people are eating more meals at home rather than going out,” according to CU economists. 

Information

“Innovation within the Colorado technology sector during the COVID-19 pandemic is perhaps most evident when looking at the move to remote work,” the report said. “The technology sector had a head start on other industries when it came to remote work with many companies already implementing such policies, thus many jobs within the sector adapted easily to the shift — with exceptions, of course. Tools such as videoconferencing and communication tools, cloud storage, and collaboration technologies are aiding employees who are working from home.”

Colorado’s tech economy is strong but still “the industry lost an estimated 1,500 jobs in 2020 and is projected to shed another 1,100 (1.5%) in 2021.”

Financial activities

The sector, which includes finance, insurance, and real estate, rental and leasing professionals, “lost an estimated 3,400 (2%) jobs in 2020, to total 170,500,” the CU outlook said. “Growth of 1.5% is projected for 2021, with the addition of 2,500 jobs.” 

The report projects that one of the sector’s key threats is “Congress’ inability to pass a second round of stimulus to address the effects of surging COVID-19 cases. … There is also the lack of a clear strategy for addressing the pandemic.”

Despite the threats, “the housing market continues to be robust in spite of the headwinds created by the COVID-19 pandemic,” CU economists said. “National home builder confidence is at an all-time high. The one constraining factor in the market is lack of supply.”

Professional and Business Services

The sector, which involves the management of companies and enterprises, administrative and support professionals, as well as workers in waste management and remediation service roles, saw jobs “decrease 1.9%, 8,400 jobs, to average 431,600 in 2020. Growth will resume in 2021, with gains of 4,400 jobs, or 1%,” CU predicted.

“According to Bloomberg’s 2020 U.S. State Innovation Index, Colorado ranked as the ninth-most innovative economy in the country and was the only non-coastal state to land in the top 10,” the outlook said. “Colorado is known as an innovative and entrepreneurial state and attracts various forms of business funding for research and development. For example, Colorado ranks sixth in the number of awards funded through the Small Business Innovation Research program since 2015.”

Education and Health Services

Economists are cautiously optimistic about the outlook for this sector. 

“While both posted strong gains after the economy reopened, an annual loss of 13,300 jobs (3.8%) is estimated for 2020. In 2021, jobs are projected to increase by 4,500, a gain of 1.3%,” the report said.

“Driving the cautious optimism for growth are several hurdles, including the following: The ability of all schools, private and public, to adjust to the changing demands of increased online coursework and reduced seat time during the duration of the pandemic. [Hurdles also include] closures related to legal and financial difficulties will limit growth,” CU reported.

“Education is in the midst of significant transformation and reform, including an increase in the adoption of online high school classes,” the report said. “This heavy reliance on technology both requires more strategic thought specific to pedagogy and instructional design but also provides tremendous opportunities for data-driven education.”

On the health services front, “expanded demand for health-care services related to the pandemic have been somewhat offset by declines in the utilization of non emergent care, causing significant financial struggles for health-care entities related to care delivery,” the report said.

Leisure and Hospitality

No other industry was hurt by the virus more than the hospitality sector, which includes conventions and meetings, hotels, restaurants, gaming, skiing, outdoor recreation, performing arts, entertainment, sports, recreation, accommodations, and food services.

“In March and April, this industry by far lost the greatest number of jobs, and recorded the greatest percentage decline — shedding 161,200 jobs, 46.7% of the industry, in just two months,” the report said. “Employment in the industry is estimated to total 273,400 in 2020, an annual decline of 71,200, or 20.7%. Industry recovery will be dependent on a vaccine and a resumption in consumer activities. Annual growth will resume in 2021, but the industry will remain well below peak, growing 19,200 jobs, or 7%.”

The pandemic is “the most challenging crisis the restaurant industry has faced in living memory. Colorado’s restaurants brought in $14.5 billion in revenue in 2019, but the industry is on track to lose billions in 2020,” according to CU economists. 

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