Consumer Confidence, Housing Trends, and Employment Outlook Improving in Metro Denver

Metro Denver Economic Development Corporation

Consumer confidence, housing trends, and the employment outlook are improving in Metro Denver according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for May 2009.

The Colorado Business Leaders Confidence Index rose from 30.6 in the first quarter of 2009 to 35.5 in the second quarter. While the index remains below the growth-neutral point of 50, the increase suggests Colorado business leaders have marginally better expectations for the second quarter.

Similarly, the U.S. Consumer Confidence Index rose considerably between March and April as consumers’ expectations for the next six months improved. The Consumer Confidence Index is now at the highest level reported so far this year.

Analysts also say Colorado’s better-than-average venture capital trends are also evidence of a competitive economy. According to the PricewaterhouseCoopers MoneyTree Report, 16 Colorado companies completed deals for $77 million in venture capital funding in the first quarter of 2009.

March employment data suggest that labor markets remain weak. Metro Denver employers added only a fraction of the jobs they typically add at this point in the year, and year-to-date employment totals are down from 2008 in all but three of the region’s 11 industry supersectors.

While these figures are bleak, observers should note that employers tend to add jobs when their overall confidence in business activity increases. Given that observation, early signs of improvement in some economic indicators may be promising.

“Although the data show that job growth in the first few months of 2009 is abysmal, I believe job losses will not reach the record annual average low we had in 2002 – a loss of 3.1 percent,” stated Patty Silverstein, chief economist for the Metro Denver EDC.

The results of the most recent Manpower Employment Outlook Survey suggest companies may moderate their job cuts in the coming months. A majority of survey respondents said they planned no staffing changes for the second quarter, and analysts say the trend reflects business attempts to balance cost reductions with the need for a solid staff base. More specifically, 73 percent of Denver area employers and 66 percent of Boulder County employers plan no staffing changes for the second quarter.

Also, home sales activity in some areas – including Metro Denver – has recently improved. Data from the National Association of Realtors show the West is currently the only U.S. region where home sales have risen above 2008 levels. Home sales remain below 2008 levels in the South (-10.9 percent), the Midwest (-11.1 percent), and the Northeast (-22.5 percent).

Denver ranks among five housing markets that are likely to recover quickly, according to a forecast developed by John Burns Associates and published in Builder magazine. The forecasting model – called Housing Cycle GPA – uses historical data on local housing supply, demand, and prices plus data on national influences. Analysts say improvements in Denver’s housing affordability and foreclosure trend will help the market recover more quickly.

Contrary to the national trend, home sales in Metro Denver rose 29.1 percent between February and March. The number of homes under contract also increased over-the-month, and the region’s total unsold inventory was down almost 20 percent from the 2008 level. Metro Denver average home prices are still falling on an over-the-year basis, but the pace of decline for both single-family homes and condominiums has slowed.

Foreclosure filings in Metro Denver increased between February and March, but the total count of filings through the first three months of the year remained more than 20 percent below filings from the same months in 2008.

While improvement for many indicators still means slower declines, a continuation of these trends could indicate that the nationwide recession is nearing bottom. Locally, eight indicators improved over-the-month and only two indicators increased on an over-the-year basis.

The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.

Key points from this month's report include:

Labor and Employment

Metro Denver employers added roughly 2,300 jobs between February and March for an increase that represented less than 25 percent of the jobs employers typically add at this point in the year. Year-to-date job counts are down in each of the 11 Metro Denver industry supersectors except education and health services, other services, and government. The natural resources and construction industry has cut the most jobs on a year-to-date basis, followed by the professional and business services industry. Metro Denver’s year-to-date job growth rate across all industries (-3 percent in March) is similar to the nationwide rate (-3.1 percent) but slightly more negative than the statewide rate (-2.5 percent).
Metro Denver’s unemployment rate averaged 7.6 percent through the first three months of 2009 in a three percentage-point increase over the same months in 2008. Year-to-date unemployment rates across the region’s seven counties ranged from 6.1 percent in Boulder County to nine percent in Adams County. Statewide unemployment has averaged 7.5 percent through the first three months of the year, and nationwide unemployment has averaged 8.8 percent.
The number of Metro Denver unemployment insurance claims filed each week has averaged 2,850 through the first three months of the year, compared to a weekly average of approximately 1,450 claims in the same months of 2008.

Consumer Sector

Metro Denver total retail sales in January were 9.3 percent below sales from January 2008.
An increase in Metro Denver hotel occupancy rates between February and March was consistent with seasonal trends, but the March rate was somewhat lower than the rate reported in the prior year.
The February traffic count at Denver International Airport declined 8.2 percent over-the-year as the pullback in travel intensified.
April was the best month for stock market performance since March 2000, and each of the national indexes increased.

Residential Real Estate

Data from the National Association of Realtors show U.S. existing home sales fell three percent between February and March. Analysts note, however, that monthly fluctuations in home sales are narrowing, and increased sales of lower-priced homes could suggest more first-time buyers are entering the market.
While record annual rates of decline in 10 of the 20 S&P/Case-Shiller Home Price Indices suggest home prices are still falling, the rate of price decline may be slowing. The over-the-year decline in the February index for Denver (-5.7 percent) ranked second-smallest among declines for the 20 metropolitan area indices, and the Denver index was also among a group of eight that declined less than two percent between January and February.
Metro Denver’s average apartment vacancy rate in the first quarter of 2009 rose to the highest level (8.4 percent) since the first quarter of 2005. Real estate experts say weak labor markets and renters’ decisions to share space are driving higher vacancy rates. First quarter rates increased over-the-year in each of the seven Metro Denver counties.

Commercial Real Estate

A first quarter report by the Frederick Ross Company suggests 2009 may be the first year since 2002 that Metro Denver’s office market shows full-year negative absorption. Analysts note, however, that Metro Denver’s office market was not overbuilt prior to the recession, and the region’s economic fundamentals – while weak – are stronger-than-average.
Marcus & Millichap’s 2009 National Office Property Index ranks Metro Denver 16 among 43 metropolitan markets.
A first quarter report by Frederick Ross Company suggests Metro Denver’s industrial sector has so far outperformed the region’s other markets because it is somewhat removed from retail market closures and office-sector job losses. The industrial market is still exposed to overall economic conditions, though, and vacancy rates have increased.
While difficult financing conditions and continued weakness in consumer spending do not bode well for the retail market, a first quarter Frederick Ross Company report notes that current vacancy rates in all but one Metro Denver submarket are below 10 percent.