Overview of Economic Outlook – View Full Report Here
In the June 2019 Revenue Forecast the Legislative Council Staff and the Office of State Planning and Budgeting predict continued economic growth but recognize that several indicators show signs that the rate of growth will slow.
The economy has grown for 10 years and in July it will become the longest economic expansion in US history. The expansion has led to low unemployment and low underemployment. In the past quarter there has been an uptick in unemployment, a positive sign which means that people have come back into the workforce and it makes it easier for firms to find employees. During this long expansion wages have increased and Colorado’s rate of increase for personal income has outpaced the nation’s rate. Personal income in Colorado increased by 5.7% in 2018 and in Colorado the average hourly wage is $30.17. Overall inflation has remained low.
Gross Domestic Product (GDP) grew 4.2% in the second quarter of 2018 and it has come down to 3.1% in the first quarter of 2019. Overall, the nation’s GDP is expected to grow at 2.4% in 2019 and 1.8% in 2020. Colorado’s economy is one of the strongest state economies in the US and in 2018 the state’s economy grew by 3.5%. While there has been strong economic growth, several components of GDP show signs of slowing down. The personal consumption expenditures component of GDP is losing momentum and has slowed in each of the last 4 quarters. Net exports have been highly variable over the last 5 quarters. Another leading indicator is the level of manufacturing, and the manufacturing index has dipped. Many manufacturers are concerned about trade uncertainties and are considering altering their supply chains. The trade tariffs are cause for a level of uncertainty to both forecasts in the longer term.
Late in the economic cycle, the economy tends to slow down because of wage pressures and inflationary pressures, but the economy still has not shown signs of overheating and the Federal Reserve has not been raising interest rates. Legislative Council Staff does not predict a near term recession or an overheating economy, but rather a slowdown in growth.
One risk OSPB saw was related to trends in bank lending standards. Bank lending standards to commercial borrowers typically tighten before a recession. In the fourth quarter of 2018 there were slightly more banks that were tightening standards compared to those loosening. However, in the first quarter of 2019, that ratio has bounced back with slightly more banks loosening standards than tightening standards.