The annual crystal ball of Colorado’s economy swirled this week as economists and industry experts shared what is in store for the new year as part of the 2022 Colorado Business Economic Outlook, produced by the University of Colorado Boulder.
“We’re pretty bullish overall on the macro economy,” Richard L. Wobbekind, associate dean of business and government relations at CU’s Leeds School of Business, said during the presentation of the report Monday. “We’re looking at … some of the strongest numbers we’ve seen since 2001.”
Wobbekind was referring to the growth in the nation’s gross domestic product, estimated at 5.5% this year and expected to grow 4% next year. But he also pointed to the limitations of making a forecast, such as ongoing supply chain issues, persistent inflation and employee shortages. It’s difficult to know when those will be resolved and there’s no way to know how COVID and new iterations of the virus will impact the economy.
However, it’s consumers who have been driving the growth, by buying houses, online shopping and spending money.
“Typically, we would go into a recession and personal income drops,” he said. “Why does personal income drop? People lose their jobs. But this time, there was such an amazing offset (with federal stimulus and unemployment benefits) that we had this sort of surge of income even when people were getting laid off.”
Employee wages in the U.S. are at their highest level ever. The Bureau of Labor Statistics said Colorado’s average hourly earnings were up $1.58 an hour to $32.65 as of October compared to a year ago. The national average was $30.96, according to the BLS Establishment Survey.
But whether consumers will remain confident and spend money even as supply chain issues and shortages continue is what economists will be watching closely.
“Consumer sentiment has really weakened quite a bit in recent weeks, in recent months, actually. At this point, we’re looking at this and trying to determine is this really going to affect the consumer? Is the consumer really going to back off from consumption and all those other positive things? … We’re leaning in that direction, but we’re certainly paying a lot of attention to confidence.”
The essence of the 174-page report (read it here) is that Colorado hasn’t completely recovered from pandemic disruptions, but we’re doing better than other states. Here are some of the forecasts for 2022:
- International workers return — International migration, which normally contributes 20% to 25% of total net migration to Colorado, was down 70% in the pandemic compared to the 2010 to 2018 average. That’s expected to return in 2022 and should help employers fill more open positions.
- Costlier meat — The agriculture industry should have a banner year in 2022, as demand pushes up prices. Sheep and lamb producers are seeing record highs for lamb prices, as restaurants, cruise ships and catering reopen. But they’re paying more for food to feed their animals. And the ongoing threat of drought caused some ranchers to reduce cattle herds. After seeing a drop to $1.1 billion in net income in 2021, farmers and ranchers are expected to see a growth to $1.3 billion in 2022.
- Big on beef — Colorado exports — mainly beef sold to China, Korea and Mexico — are on track to exceed 2020 by 30% this year.
- Hemp reduction — Hemp farmers are in decline and growers said it’s due to the lack of a market and processing facilities, plus competition from other states. The number of registered growers in the state fell to 500 this year, from 2,000 in 2019.
- Slightly cheaper gas — Retail gasoline prices shot up this year, and were an average of $3.21 per gallon for all grades, as of October in Colorado. Nationally, prices are expected to decline next year — down 6 cents to $3.04, according to the International Energy Agency. Colorado prices are forecast to be between $2.90 to $3.40 on average per gallon for all grades next year.
- Higher home prices — While the non-residential building sector took a hit this year, falling 14% as companies reconsidered returning to an office, growth in residential construction will continue to be strong 2022 — and that’s after two years of record sales. “High prices have yet to discourage sales; markets across the state are on track to nearly match last year’s record number of sales,” the report said.
- More apartments — As for apartments and multifamily housing, there was a surge in permit applications this year. And now, there are 19,200 multifamily units permitted, up 38.8% from last year’s 13,833. Because of the growth in 2021, economists expect a decline in multifamily building permits in 2022.
- Mixed on manufacturing — 6.5% of the state’s gross domestic product came from manufacturing. It’s been a growing sector in the past decade and did better than most during the pandemic. The problem now is finding enough workers and dealing with supply chain issues. Still in recovery, the manufacturing industry will continue to add workers in 2022 but still be below its workforce level from before the pandemic.
- Bring on the beer — While the brewing industry was hit in the pandemic, consumer demand continued and state government made it easier to help brewers deliver. With to-go alcohol and delivery continuing through July 1, 2025, in Colorado, the brewing industry will continue recovering in 2022.
- Good time to sell an old car — It’s been a recovery year for auto dealers, which saw 20% of franchised new car dealers change owners — “a number that is 400% higher than at any time in history.” But supply chain issues, notably with microchip processors for modern-car features, have created major inventory shortages of new vehicles by up to “95% reduction in some instances.” Consumers are noticing that “the car in their driveway is worth much more now than it was just six to 12 months ago,” the report says.
- More local video games — Not Colorado-themed games, but games developed by locals have increased and are seeing success, partly enabled by $2.6 million in state incentives that created 381 jobs, as of 2021. “Life is Strange: True Colors,” from Deck Nine in Westminster, debuted in the top 10 highest-selling games on all platforms in September, according to NPD Group. The niche industry is expected to see exponential growth in 2022 because people are still spending time at home and developers can work remotely.
→ The Colorado Business Economic Outlook >> MORE
Another economic report: CSU
Also this week, a report from the Colorado Futures Center at Colorado State University System provided a short-term forecast for the state that also is upbeat about the state’s recovery.
Growth is slowing, but that’s expected since we’ve recovered a lot since the 2020 pandemic, just by the fact that businesses and restaurants reopened. It’s still growing, though, and CSU economist Phyllis Resnick forecasts the state’s economy will be at an annual growth rate of 6.45% by April 2022.
But full recovery at this point may look very different from 2019.
“Economic events can create disruptions. They (reorganize) the way we organize ourselves economically,” Resnick said during a conference call. “I will admit it was pretty simple to get up this morning and get dressed and hop on the screen, instead of getting dressed, driving in my car to Denver, finding a parking space and walking into a room.”
Extend that globally and people will likely opt for not getting on a plane to fly to Geneva for a four-hour business meeting, she said.
“It’s not clear that business travel will ever recover to the level it was,” she said.
→ The CSU ColoradoCast report for fourth quarter 2021 >> READ
Other economic reports and forecasts:
→ Inflation up 6.8% from last November — Some of the biggest spikes were energy related with the gasoline index rising 58.1% over last year, the largest 12-month increase since April 1980, according to the U.S. Bureau of Labor Statistics. Also up: used car prices, by 31.2%; new cars, at 9.4%; and food, at 6.1%. >> CONSUMER PRICE INDEX
→ U.S. wages climbing — It’s not just Colorado. Paychecks are expected to go up nationwide. Higher salaries will push average pay 3.9 percent in 2022, according to the Conference Board report. That’s the fastest growth since 2008, The Washington Post reported. >> STORY
→ Minimum wage in 2022 — One increase is for certain in Colorado. In January, the state minimum wage goes up to $12.56 an hour, from $12.32. In Denver, it goes up to $15.87 from $14.77. >> COLORADO, DENVER
→ Pandemic savings dwindling? — Colorado economists pointed to federal stimulus and unemployment benefits that kept consumers spending money last year and this year. But a Moody’s Analytics report says those savings could be exhausted “as soon as early next year,” reports The New York Times. >> STORY
→ Remote surveillance of remote workers — The time and cost savings enjoyed by those who can work at home may not matter if your employer is spying on you. Many employers added surveillance tools to make sure employees were doing their jobs, reports news site ZDNet. And that’s undermining trust and commitment to work and leaving employees unaware of how their data is being used, says a new report by the European Commission’s Joint Research Council. >> STORY
Auditor’s take on unemployment fraud
In last week’s column, we reported that the Colorado Department of Labor and Employment stopped a lot of unemployment fraud, but had made $30 million in fraudulent payments.
On Monday, the Colorado Office of the State Auditor released its report into fraud and concluded that there was $73 million paid in likely fraudulent claims, including to dead people, inmates and underage applicants.
The two numbers don’t necessarily conflict. The CDLE figure is confirmed fraud. The auditor’s number is likely fraud, but it hasn’t been investigated or confirmed. Phil Spesshardt, CDLE’s director of the Unemployment Insurance Division, shared a statement that basically said that but also cast doubt on the auditor’s findings.
“Through investigations, it is likely that many of the claims identified in the audit as potentially fraudulent will be determined to be legitimate,” Spesshardt said.
A fraction of fraud
In response to a reader’s query, I wanted to share more context about the amount of fraud that was paid compared to the overall benefit to unemployed Coloradans. Fraud was a fraction of all payments.
I’m using these assumptions from CDLE:
- $30 million in confirmed fraud, which means it was investigated and verified by CDLE
- $600 million in suspected fraud, which means a payments are on hold until the state completes the investigation
- $40 million in recovered payments, which still could later prove to be legitimate
- $11.6 billion in unemployment benefits paid since March 2020, with 70% paid using federal funds
What’s the impact for the state? I did the math for you:
- 0.26% of the $11.6 billion is confirmed fraud that was paid
- 5.5% is likely fraud and hasn’t been paid
Fraud is a small percent of how much Coloradans received in unemployment benefits. But CDLE did have to invest in fraud-prevention measures, plus customer support staff and investigators in order to minimize attempts to trick the system. I’ve heard from many people how the money helped them get through the pandemic (though I continue to hear from others, including this week, of accounts still in limbo).
CDLE also said the amount of confirmed fraud may grow as investigations continue. The department has a responsibility to prevent and detect fraud, or it may have to pay that amount back to the Feds.
The auditor’s office called it a waste of taxpayer funds. “When the department pays fraudulent unemployment claims, public funds are wasted,” the report said.
Coloradans who lose their job through no fault of their own are eligible for unemployment benefits if their employer paid into the state insurance trust fund.
But what does it mean if the fund is out of money and now owes $1 billion? And what does this mean for employers who are responsible for filling the trust fund back up? I’ve got answers but would love to hear your questions and company stories about how to refill the state’s unemployment bank account. Tell me about it at firstname.lastname@example.org. See you next week! ~tamara
This story was updated at 6:58 a.m. on Dec. 11, 2021, to correct that the Leeds School of Business is at CU, not CSU.