Fed economists see brighter days ahead for Colorado

By: WAYNE HEILMAN wayneh@gazette.com
September 24, 2013 Updated: September 24, 2013 at 3:25 pm
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Economic growth is expected to gain additional strength both in Colorado and across the rest of the nation next year as automatic federal budget cuts loosen their grip on both economies, according to two economists from the Federal Reserve Bank of Kansas City.

Alison Felix, the bank's Denver branch executive and assistant vice president, anticipates that construction and manufacturing activity will accelerate in Colorado as federal budget cuts take less of a toll on the state's economy. That will helppush down the state's 7 percent unemployment rate, said Felix, who will join Troy Davig, the bank's research director and senior vice president, at a private economic forum Wednesday in Pueblo to discuss the Colorado and U.S. economies.

"Colorado has been growing at a faster pace than the rest of the nation, though that growth has been uneven across the state, with stronger growth in the Denver area and western Colorado and somewhat weaker growth in the southern and eastern parts of the state," Felix said Tuesday in an interview about her forecast. "While growth has been strongest in the construction, leisure and hospitality and professional and business services industries, economic growth has been broad-based, with employment declines in a only a handful of sectors."

Economic growth in Colorado has outpaced much of the nation for the past 1? years, in large part because of resurgent housing construction - up more than 50 percent statewide in the 12 months ended in July compared with a year earlier. U.S. housing construction is up 31 percent during the same period.

Colorado home prices also were up 9.3 percent in the second quarter compared with a year ago, and are up 6.2 percent from the peak level reached in the first quarter of 2007, just before the recession began, she said.

Economic growth in Colorado Springs has lagged the rest of the state because federal government budget cuts have a bigger influence on the local economy where nearly half of all economic activity is tied to the military and other federal agencies, Felix said. The Colorado Springs economy should gain strength next year despite continuing federal cuts because of continued strong housing construction, she said. Permits for new single-family homes are the strongest in El Paso County among the state's largest counties.

Davig forecasts that U.S. economic growth next year will reach its highest level since 2006 - nearly 3 percent - as a result of strong private-sector growth and investment spending with automatic federal spending cuts becoming less of a drag on the national economy. He expects U.S. exports to resume growing next year as the European financial crisis recedes and concerns about slowing economic growth in China fade. Both have put the brakes on the nation's economic growth during the past two years.

"I see the fiscal headwinds of the past year - sequestration, the expiration of the payroll tax cut and higher tax rates for higher-income taxpayers - subsiding a bit in 2014, which should trigger a better year of economic growth than we have seen since the recession," Davig said. "I think higher mortgage rates will take some of the momentum out of the construction industry, but the industry is still growing and the Fed remains concerned about rates moving up too much too quickly."


Contact Wayne Heilman: 636-0234 Twitter @wayneheilman

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