“There is about zero chance that Colorado will not experience a recession in the coming year,” economist Tucker Hart Adams said Jan. 24 in response to the question on everyone's mind.
“But the good news is that by this time next year the economy will have bottomed out, and it will be over.”
Adams was speaking to a group of 100 members of the Evergreen Chamber of Commerce and the Mountain Metro Association of Realtors at a breakfast meeting at El Rancho Restaurant.
Adams has made an annual speech in Evergreen for the last 10 to 15 years, according to the Evergreen chamber. Adams, 70, this year announced her retirement aschief economist of U.S. Bank for the Rocky Mountain region. She is also giving up her speaking career, but will continue her newsletter and other writing projects.
In her typical down-to-earth and entertaining style, Adams brought the audience up to date in the worlds of finance and economics.
But first she took a couple of minutes to gloat about the fact that in 2007 she predicted a national recession in 2008. (A recession is defined as two consecutive quarters of declining output or gross domestic product.)
Some of the statistics leading Adams to that conclusion included employment data, housing prices, home-equity borrowing limits and expanding credit card debt.
“The December employment data was really bad,” Adams said, with only 18,000 new jobs being created in December, compared to 20 million workers. There were also 900,000 more unemployed that month compared to 2006.
The labor participation rate also dropped in December, indicating more people are so discouraged about finding a job they have stopped looking, she said.
The most recent housing report showed new-home sales dropped 25 percent, the biggest decline in 25 years, and home prices are falling around the country in most market areas.
Most consumers have tapped out their home equity lines and credit card limits to pay for consumer items and are in a belt-tightening mode. Only 37 pecent of consumers pay their credit card bill in full every month, and 21 percent don’t pay off the payment due, she said.
“I am worried about the American consumer’s ability to spend and their willingness to spend,” Adams said. “Consumers are very stressed.
She traced the current turmoil in the credit markets to a misguided belief that risk could be engineered out of the equation.
“We deluded ourselves into thinking the MBAs had figured a way to take risky debt by slicing it up in different ways. I heard guys say they had gotten rid of risk. That’s not the case. We just don’t know where it is,” Adams said.
The inflation rate in December was 4.1 percent, the worst in 18 years, thanks to escalating food and energy prices.
Turning to the Colorado economy, Adams sees a minimal growth scenario in 2008 and “zero chance to avoid a recesssion.” There is a 50-50 chance the recesssion will be severe. There is a “tiny possibility of a total meltdown,” she said.
Adams’ forecast includes a 7.1 percent decline in residential building permits and 14 percent decline in commercial contracts in 2008 over 2007. (Residential building permits declined 18 percent in 2007 and 16 percent in 2006.)
She doesn’t expect President Bush’s economic stimulus package to be in force soon enough to have any impact. “The best indicator of the end of a recession is the government passing a stimulus package.”
The oil and gas industry is producing a limited boom on the Western Slope. Defense dollars will be flowing into Colorado Springs in a few years to fund the expansion at Fort Carson. But the the Springs housing market is already overbuilt, she said. The ethanol boom is affecting a few counties in a good way, but she described enthanol as “not quite a scam, but an agricultural subsidy.”
Otherwise, she does not see a lot of jobs moving into the state in the next year, putting the brakes on real estate sales and housing. The unemployment rate will go up about 1 percent to 4.8 percent in 2008, she predicted.
Employment growth in 2008 is expected to increase 0.5 percent to only 11,500 jobs, compared to 1.5 perent, or 35,000 jobs, in 2007. If the state demographer is right, population will be up 2.1 percent in 2008, passing the 5 million mark. But Adams thinks that’s optimistic. “I don’t think we are getting the jobs.”
On the bright side, “the worst of the housing slump will be behind us by the end of 2008,” and Colorado will not sink into as deep a recession because it has not experienced the speculative home-price appreciation that took place elsewhere.