Colorado Economic Performance Forecast: 2004

Introduction

Executive Summary

• Growth of State Gross Product will decline from a 3-year average of 7.5 percent per year to a 3-year average of 1.8 percent per year.
• Population growth is expected to gain momentum, but the projected 2 percent growth is well below growth rates observed during the 1990's.
• After Colorado experienced two consecutive years of net job loss, our models predict that Colorado will add just over 16,000 jobs in 2004.
• Retail sales growth is expected to be higher in 2004 (2 percent) than 2002 (0.4 percent) and 2003 (1.8 percent), but growth during the important holiday period is expected to be slower than growth earlier in the year.
• After Colorado's revenue collections took big hits in 2002 and 2003, our models predict that Colorado's general fund revenues will not shrink, but will grow very slightly in the current fiscal year (ending June 30, 2004).

State Gross Product

The annual growth rate of nominal SGP for Colorado grew at a very slow rate (2.62%) in 2001, the last year for available data. This decline in the growth rate was much more than our forecast models predicted last year. Given this new data, our revised forecast models predict very slow growth to continue through 2004 (average growth of 1.82% over 2002 - 2004). The following table shows that the most current and predicted growth rates are considerably lower than growth rates observed during the 1990's.

Weakness growth of Colorado's Gross Product is observed in almost every industry segment. The following table compares historic (1999 - 2001) 3-year average growth rates with the 3-year average growth rates over the forecast period (2002 - 2004) for each industry segment.

Despite the improvement, which began in the second half of 2003, our current models point to a stalled recovery in 2004, which will look much like 2003 in terms of growth.

Population and Employment

We examined annual growth rates for population and employment as well as monthly growth of employment. The following table shows population annual growth rates for 1998 through 2004.

Our 2003 forecast predicted slower population growth for Colorado. Our forecast for 2002 was 1.77% growth, which was slightly above the reported number of 1.70%. Our current models predict a slight increase in population growth - about 1.5% for 2003, which is up from last year's forecast of about 1.0%, and 2.0% percent for 2004. While these forecasts show some improvement, the predictions are for growth rates that are well below the level which helped drive Colorado's record economic growth of the late 1990's.

S K Enterprises analysts examined two sets of employment data: 1) annual employment by industry, and 2) monthly civilian, non-farm employment. The following table shows annual rates of growth for employment by industry for 2002 through 2004.

Our forecast for 2003 from last year predicted a net job loss for Colorado of approximately 17,000 jobs. 2003 data shows that the Colorado economy shed about 17,450 job for the year. Our current models are predicting a very modest net gain of slightly over 16,000 jobs in 2004. This job growth, however, is conditioned upon growth in the government segment of slightly over 14,000 jobs. Industry segments incurring net job losses include manufacturing, information (motion picture, software, publishing, telecommunications Internet service providers), and construction.

The monthly forecast of civilian, non-farm employment predicts that job growth will be greatest in the fourth quarter of 2004, but that growth will start slowing in October. The following table shows monthly civilian, non-farm employment levels for 2001 through 2004.

Retail Sales

The forecast for Colorado retail sales in 2004 is for an increase in the growth experienced in 2003. Retail slaes are predicted to grow a modest 2.0 percent in 2004, which is an increase in growth over the 1.75 percent growth in 2003.

The models show that 2003 retail sales exhibited steady, but fairly weak growth of about 1.75 percent throught the year. The 2004 forecast predicts slightly higher growth, of about 2 percent, but weaker growth toward the end of 2004 (a less than robust holiday sales period). These forecasted growth rates further emphasize the lack of real spark for Colorado's economy.

Sales and Use Taxes

This analysis examined annual sales and use taxes for Colorado. Econometric models were used to provide a forecast of sales and use taxes for the 2004 fiscal year. The following table shows historic and forecasted sales taxes for the period 1992 through 2004 along with corresponding annual growth rates.

Our forecast of 2003 sales tax from last year was higher than what was reported by about $95 million on a base of $1.7 billion. The current forecast models predict a return to growth for Colorado sales tax collections for the 2003-2004 fiscal year (ending June 30, 2004). Although this growth is not particularly sizeable (slightly less than $48 million), it is a big improvement over the two previous fiscal years, during which Colorado's sales tax collections shrank by over 3 percent per year.

Income Taxes

S K Enterprises also examined annual net income taxes collected. The following table shows historic and forecasted net income taxes collected for individuals, corporations and total along with their corresponding annual growth rates.

This table shows that the forecast models indicate another tough fiscal year for Colorado's revenue collections with income taxes expected to fall another one-half percent in fiscal year 2004 in addition to the 6.7 percent decline experienced in 2003. Our models are predicting a sharp improvement in corporate income tax collections, but continued weakness in the personal income tax collections, which conforms to what appears to be a "jobless" economic recovery.

Summary

The conclusion that we can draw from this analysis is that Colorado's economy will be at a pivotal point in 2004. Although the worst of the economic problems that impacted Colorado in 2001, 2002, and 2003 appear to have ended, the hoped for recovery likely will not appear in 2004. Instead what our models are predicting are no, or weak growth in everything from State Gross Product, to employment, retail sales and revenue collections.