Who said the economy is strong?............................................economic outlook '99
Pace of growth to slacken
By Donald Blount and Emily Narvaes
Denver Post Business Writers
February 1999 - After nearly a decade of bright, shining moments,
Colorado's economic outlook is dimming this year.
Job growth will slow, unemployment will rise, and the number of planned
commercial buildings will shrink, area economists and business leaders said.
It's not the kind of forecast to drive people panicked into the streets, nothing
like the recession of the late 1980s, when a deflated construction market, a
drop in oil prices and layoffs in other industries collaborated to turn a sweet
market sour virtually overnight.
In 1999, the state's economy will grow. It just won't grow as much.
"The economy is a little softer,'' said Gary Jacobs, executive vice president
for Corporate Express, a Broomfield office supply company that has 750 of
its 25,000 employees in Colorado.
A tight labor market, traffic congestion and growth, growth, growth have
been earmarks of the rapid expansion Colorado has experienced during the
decade.
One major concern for economists this year is the amount of construction in
the office and industrial sectors, which have boomed since the mid-1990s
after nearly a decade of no activity.
Rents continue to rise and vacancy rates remain low, indicating the overall
economy is still healthy. But economists see warning signs.
Some of the new buildings aren't being leased as quickly as in the past.
Rent concessions are likely to appear this year, real estate analysts said.
"There's a lot of space on the market,'' said Tom Stahl, an industrial broker
at Colliers Bennett & Kahnweiler, a real estate brokerage firm in Denver.
But, he added, "There's no big panic out there.''
Roughly 3.7 million square feet of industrial space - equivalent to just under
65 football fields - is available for rent. That's up from the 2.5 million square
feet that was available a year ago.
The warehouses being built along I-70 near Denver International Airport
make Tucker Hart Adams, chief economist for U.S. Bank's Rocky
Mountain region, "very nervous,'' she told a group of office and industrial
brokers recently.
"My concern is people will wake up and say, 'Whoops! We're overbuilding
and it's time to back off,' and the whole thing will come crashing down,'' she
said.
Another iffy factor for 1999 is that projections have been more difficult to
make because of outside influences such as the economic and political
problems in Asia, Latin America and Russia, economists said.
"I am very apprehensive about this coming year,'' said Richard Wobbekind,
director of the Business Research Division at the University of Colorado at
Boulder.
The face of the state's economy has changed over the years, said analysts.
Mutual funds and other investments have caused people here to be more
closely linked to the stock market. That in turn strengthens the links between
Colorado and non-Colorado events.
Thus far, projections are still favorable.
The state's economic growth will be 2.3 percent this year, down from 3.1
percent last year and 3.8 percent in 1997.
The growth rate is Colorado's slowest since 1991. It doesn't mean the
economy is weak, said Adams during the release last fall of U.S. Bank's
1999 economic outlook, "it just isn't what it used to be.''
Colorado's economy will continue to outpace the national economy.
Nationally, growth is estimated to be 2.2 percent this year, down from 3.6
percent last year. Unemployment will be 4.7 percent, up from 4.5 percent in
1998. For the 11th consecutive year, Colorado's per capita income - at
$29,692 - will rise and continue to outpace the national per capita income -
at $27,274 this year.
Colorado's unemployment is expected to rise to 3.7 percent this year, up
from 3.3 percent last year. Employment growth is projected to be 2.3
percent, down from 3.5 percent last year.
Securing employment should be no problem for most. "Anyone who wants a
job can find a job,'' Adams said.
Last year, only six states had lower unemployment rates and five states
higher job growth rates than Colorado, according to economic reports.
The increase in jobs is in part affected by the increase in population.
Colorado's population growth has slowed dramatically from the early part of
the decade when it grew by more than 300,000 people in three years. In
1999 the state's population is expected to grow by 78,000 people, or 1.9
percent to 4.09 million.
Within the overall economy, different sectors offer different prospects.
International trade has already undergone a shakeup, with about half of the
staffers at the state International Trade Office being let go. Marc Holtzman,
who replaced Morgan Smith as executive director of the state trade office,
said replacements will be those with different skill sets as the office seeks to
change its focus from exporting to direct investment in Colorado.
Agriculture is expected to begin the year gingerly before it recov ers from
oversupply, a weakened market in Asia, Russia and other export markets.
Oil, gas and mining is the sole sector in which employment is not expected
to grow this year.
The sector's employment is expected to fall by less than 1 percent to 13,800
jobs.
The strength of the state's economy will continue to attract national retailers
looking to expand their markets with major projects in the northern
metro-area suburbs expected to break ground or near completion this year.
But spending is one area that has concerned economists.
Consumer spending nationally is estimated to have grown by 4.8 percent for
1998, while disposable income grew by 3.1 percent, according to Standard
and Poor's. The money for that spending came at the expense of savings.
People aren't saving, but feel wealthier because of the rise in the stock
market, analysts said.
The Dow Jones industrial average, a prominent market indicator, closed
1998 up 16 percent at 9,181.43.
It marked the fourth consecutive year the market had closed with
double-digit returns for the year. But in some ways it was a rough year for
the market as volatility and choppiness were prevalent throughout.
That volatility has also slowed the pace at which real estate develops in
Denver because it has reduced the amount of capital available for
construction projects.
Stocks and other economic components of the state will be watched closely
to determine which direction the tide will flow.
Commercial development could be problematical.
Some sobering facts from Colliers Bennett & Kahnweiler:
- Warehouse development in the bellwether industrial market - I70 frontage
between the old Stapleton airport and Peña Boulevard - was up 60 percent
while demand was up only 9 percent in 1998.
- The vacancy rate for the office market, including the southeast suburbs,
Downtown and the northwest area, will rise to 8.6 percent in 1999 from 7.9
percent in 1998 after years of mostly declining vacancies.
- The total amount of office space leased - taking into account companies
moving in and out of offices - has declined since 1997, going from 3 million
square feet in 1997 down to 2.4 million square feet in 1998.
A bit more than half of the 3.6 million square feet of planned new
construction is expected to be leased this year.
Still, the fundamentals of a strong real estate market - rising rents and low
vacancy rates - remain, said Sherman Miller, managing director of Cushman
& Wakefield, another real-estate brokerage firm in Denver.
"If buildings remain vacant a year from construction, that would be a
concern,'' Miller said. "But I don't see that as a possibility.''
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