While Colorado Springs has recovered from the COVID-19 pandemic faster than most cities, the local, state and national economies face challenges that likely will slow the recovery during the rest of the year and into 2022, according to a forecast from a top local economist.
Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum, said a worsening labor shortage, escalating inflation and declining housing affordability are all "headwinds" threatening to slow recovery from the pandemic. She made the comments in a forecast she recorded for the forum's 25th annual economic forecast event on Thursday, which will be held virtually for the second consecutive year.
"All of these were issues before, and they are not going completely away anytime soon," Bailey said in an interview after she recorded her presentation. "I'm not sure that people realize that the labor shortage will be with us for a long time. We have seen a really small growth rate in the working population and the number of people 18 years old and younger has declined in the past decade."
Workers are worried about the rapid spread in the past two months of the delta variant of the COVID virus and some are reluctant to get vaccinated against the virus, while others are unable to find child care or don't find wages offered by employers attractive enough to return to work, Bailey said. Many employers nationwide say they can't fill open positions, even as the number of people holding jobs remains nearly 5 million below the peak reached before the pandemic triggered widespread job losses.
Although Bailey believes higher inflation, driven by surging oil and housing prices, is temporary as a result of pandemic-related supply chain disruptions, she is afraid worsening inflation will erode consumer and business confidence. Small businesses struggle with higher prices to remain competitive more than larger companies that can use their size to get better prices, she said.
"I'm not entirely convinced that there will be smooth sailing for the local, state and national economies going forward because we are facing so many headwinds," Bailey said. "Without workers, how do we grow? At some point, consumers will start pulling back. We are already seeing that with consumer confidence. I don't see a double-dip recession coming, but it will take longer to recover than most expect."
Bailey fears that escalating housing prices in the Colorado Springs — the median home price peaked at $450,000 earlier this year — eventually will worsen the labor shortage, especially for lower-skilled, lower-paid workers. She pointed to Breckenridge, where housing prices are so high that workers must commute for long distances to find housing they can afford, making recruiting labor difficult.
Most economists have revised their forecasts lower for economic growth this year — Bailey is predicting 5.9% this year and between 3% and 4% during the next two years. Those numbers might look impressive, but she noted that those growth rates are based on much smaller numbers last year, when the local, state and national economies were emerging from stay-at-home orders early in the pandemic.
Bailey expects the local unemployment rate to drop from 5.6% in August, the most recent month available, to 5.4% by year's end and the local economy to recover the jobs lost during the early months. But she said the employment rate won't likely quickly recover to the near-record lows reached before the pandemic as some workers continue to remain on the sidelines of the labor market.
The forecast program, available free at uccseconomicforum.com, also features a keynote address by Marci McGregor, managing director and senior investment strategist with the chief investment office of Bank of America. Videos from the event's founders, who will discuss how it began in 1997; UCCS business professor Don Warrick, who's marking his 50th anniversary at the school; and Colorado Springs Mayor John Suthers, who will provide an overview of past and current conditions in the city, also are part of the program.