Romer: Colorado’s economic outlook is bright
Last week, the Office of State Planning and Budgeting and Legislative Council presented the 2022 Quarterly March Revenue Forecast to the Joint Budget Committee.
It is no joke that our economy continues to rebound from the depths of the pandemic. The report highlights how Colorado and the nation’s economic recovery from 2020 continues and also highlights the emerging challenges that cloud the outlook. While economic activity has reached and exceeded pre-pandemic levels, employment has yet to fully recover in several service industries hit hardest by the pandemic, and inflationary pressures continue to mount.
Colorado has fully recovered private sector jobs lost in early 2020. The figures show losses of 358,800 private jobs in March and April 2020, with gains totaling 370,000 since that period. That represents a recovery of around 103 percent of private-sector jobs lost in 2020, which substantially outpaces the U.S. recovery rate of about 90 percent. Colorado’s private-sector job recovery rate ranks as the 11th-fastest in the nation when expressed as a rate and the 17th-highest in absolute terms (i.e., added back 370,000 since April 2020).
The state budget shows positive signs of health. The Colorado General Assembly is projected to have $3.2 billion, or 20.7%, more to save or spend in the General Fund than what is budgeted to be saved and spent in the Fiscal Year 2021-22.
There were numerous key takeaways from the revenue forecast. Colorado’s unemployment rate fell to 4.1% in January 2022, regaining 98.4% of jobs lost since the pandemic began (and Eagle County is doing even better — at 3.1% unemployment and having more jobs than pre-pandemic). The report also shined a spotlight on the inflationary risk, which is unusually high from wage gains, pandemic-induced supply chain disruptions, and geopolitical conflict. Transportation and energy contribute to inflationary pressure and Colorado inflation is projected to be an average of 7% in 2022 and 3.8% in 2023.
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Amid the growing concern over inflation and economic uncertainty, Colorado continues to have extraordinary flexibility in terms of funding on hand for the current fiscal year. Assuming the JBC actions taken to date are kept during the budget process, the state will have an excess reserve of $1.2 billion to spend or save for future years.
The “Great Reconsideration” continues in labor markets, with elevated quits, retirements and job switching. Workers are slowly increasing hours and taking on additional jobs, yet work is slow to normalize, and employers continue to struggle to find the needed help.
While the tight labor market is producing sizable wage gains, many households are increasingly drawing down savings, as inflationary pressures are outpacing wage hikes for most. Pandemic-related challenges have been compounded by emerging risks, including accelerating inflation and the war in Ukraine.
As inflationary pressures mount, the Federal Reserve hiked interest rates 25 basis points in March, and additional increases are expected throughout the year. While the forecast assumes a smooth transition toward tighter monetary policy, efforts to rein in inflation could come at the cost of economic growth and might be a source of volatility in financial markets. High inflation is expected to erode business profits and mute consumer activity in 2022, while higher interest rates will slow economic activity over the longer term.
What does it mean for Eagle County? The war in Ukraine, mounting inflationary pressure, and evolving monetary policy all elevate the risk of recession and economic contraction, but Colorado and Eagle County are well-positioned to weather the storm and continue our positive momentum.
Chris Romer is president and CEO of Vail Valley Partnership, the regional chamber of commerce. Learn more at VailValleyPartnership.com.