Colorado economic outlook continues improvement despite COVID, supply chain risks

CDLE expects state to return to pre-pandemic job levels by Q2 of 2022
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Posted at 12:25 PM, Dec 17, 2021
and last updated 2021-12-17 21:01:36-05

DENVER – The Colorado Department of Labor and Employment expects Colorado to get back to pre-pandemic job levels by the second quarter of 2022, and revenue projections continue to rise for the next budget year despite continuing uncertainty surrounding the COVID pandemic.

The state’s unemployment rate fell to 5.1% in November from 5.4% in October – the seventh straight month it has declined. The labor force increased by 3,100 people, and 9,800 nonfarm payroll jobs were added last month, according to the CDLE. The U.S. unemployment rate dropped to 4.2% in November.

Colorado has regained 322,200 of the 375,800 nonfarm payroll jobs lost between February and April of 2020 at the onset of the pandemic – a job recovery rate of 85.7%, which outpaces the U.S. rate of 82.5%. Colorado’s rate is the 17th-fastest recovery rate in the nation.

The bulk of those gains were in the accommodation and food services sector – which has accounted for 48% of job gains in 2021 in Colorado, according to CDLE Senior Economist Ryan Gedney. But that sector lost some jobs in November while other sectors added jobs, which Gedney said was a positive takeaway for the month.

The CDLE expects nonfarm payroll job numbers to reach their February 2020 levels either late in the first quarter of 2022 or in the second quarter, Gedney said. Colorado is currently about 53,000 jobs behind where it was before the pandemic, though Gedney said a benchmarking process would likely reveal that number was closer to about 35,000 jobs.

Legislative Council Staff and the Office of State Planning and Budgeting also released their latest economic forecasts Friday, both of which predict the unemployment rate will continue to drop and revised General Fund revenue upward for the current and next fiscal years compared to September’s forecast.

But both forecasts also show some uncertainty about the omicron variant, the ongoing pandemic, inflation and supply chain issues that could affect the budget once lawmakers start hashing out the final plan in the next few months.

“OSPB expects the labor shortage to continue into the beginning of 2022, particularly as the Omicron variant of Covid-19 may cause people to be more hesitant about returning to work,” the OSPB forecast says. “However, OSPB expects employment difficulties to ease by the middle of 2022 as the effects of stimulus payments and extended unemployment benefits continue to decline.”

LCS revised General Fund revenues upward from September by $791 million for FY2021-22 and $528.4 million for FY2022-23, while the OSPB revised them upward by $704.5 million for FY2021-22 and $600 million for FY2022-23 compared to September’s forecast. Most of those revisions are because of rising incomes and sales tax collections based on consumer spending, according to the forecasts. However, the LCS forecasts a $21 million reduction in the total reserve amount compared to the September forecast.

But both forecasts also show that revenue will likely exceed the Taxpayer Bill of Rights (TABOR) cap for this fiscal year and the next three – to the tune of roughly $6 billion through FY2024-25 that will mostly go back to taxpayers and local governments instead of the state.

But there remains a gap between low- and high-wage workers in terms of employment recovery compared to January 2020. People making more than $60,000 a year have added 8.6% of the jobs they had in January 2020, while people making $27,000 to $60,000 have lost 2.6% of the jobs since then. People making under $27,000 have lost 30.5% of the jobs they had in January 2020. But state economists said that could be because some people are leaving part-time jobs or moving to higher-income jobs.

Still, the OSPB presentation showed the professional and technical services sector, which was only slightly impacted in terms of wages and salaries during the pandemic and comprises the sector with the highest earners, continued its growth since 2020, while the lower-earning sectors have seen only minimal growth.

“The accommodation and food services sector has still not returned to pre-pandemic levels, but the aggregate wages and salaries of this sector are only about one-quarter of Colorado’s professional and services sector,” the OSPB forecast says. “The relative stability of wages and salaries in higher income sectors have buoyed individual income tax receipts.”

And corporate profits, which hit a U.S. record high in the third quarter, are expected to remain at record-high levels despite some forecast moderation.

There are also still gaps in terms of which areas of the state have recovered more jobs lost at the beginning of the pandemic. Among the seven major metropolitan areas of Colorado, Pueblo had an unemployment rate of 6.6% in November, the highest among the group. Boulder (3.5%) and Fort Collins (3.8%) had the lowest rates out of the seven, while Denver, Greeley, Colorado Springs and Grand Junction all had unemployment rates between 4.5% and 4.7% in November.

San Miguel County (7.6%) and Huerfano County (6.8%) had the state’s highest unemployment rates in November.

Both LCS and the OSPB see risks in the supply chain disruptions and inflation, as well as the tight labor market, which is sending wages upward. The LCS sees the Build Back Better Act, should it pass, as a positive for spending, employment, incomes and tax revenues.

According to the LCS forecast, inflation in the Denver-Aurora-Lakewood area, at 6.5% in November, was still lower than U.S. inflation of 6.9%. Both inflation rates are driven heavily by inflation in the energy sectors. Excluding energy and food, inflation in the Denver-Aurora-Lakewood area is around 5.2% -- up about 5% since the beginning of the year.

LCS predicts inflation will increase 3.4% in 2022 and then decrease to 1.8% in 2023 for the Denver-Aurora-Lakewood area.

Gov. Jared Polis and members of the Joint Budget Committee found the forecasts released Friday to be positive news overall despite the ongoing risks.

“This forecast shows a robust recovery,” Polis said in a statement.

“Today’s forecast shows that Colorado’s recovery is well underway and that many of our efforts to boost the economy have been successful,” said JBC Chair Rep. Julie McCluskie, D-Dillon, in a statement. “While we’re all heartened to hear that many of our most treasured industries have come roaring back, we are also keenly aware of the rising cost of living in Colorado and are determined to craft a budget that saves people and businesses money and leaves more money in their pocket at the end of the month.”