The economic picture in the Colorado Springs area was a bright one in 2017, with unemployment falling below 3 percent and home sales and homebuilding still on a roll.
Will the good times continue in 2018?
Barring an unexpected national downturn or a geopolitical issue rattling the economy, “I think 2018 looks really quite strong,” says Tatiana Bailey, director of the UCCS Economic Forum. “We’re in such a good position because before, Colorado Springs would be happy to be on the coattails of what was going well nationally. Now we seem to be a little bit better than what occurs in the nation.”
Tom Binnings, a senior partner in Colorado Springs economic research and consulting firm Summit Economics, expects the economy to “cool down slightly” in 2018. He cites labor shortages, rising interest rates and a possible correction in a surging stock market as issues.
Here’s a look at various areas of the economy as the new year beckons.
Colorado is expected to add 47,100 jobs in 2018, or 1.8 percent growth, according to the Colorado Business Economic Outlook 2018 released by the University of Colorado at Boulder’s Leeds School of Business. That’s slower than the last couple of years but still in the top 10 nationally.
The unemployment rate for the Colorado Springs area in October rose to 3.2 percent – its highest level since February – while payroll growth slowed to a five-year low. Still, the local jobless rate in October was nearly a full percentage point below the national rate of 4.1 percent. Bailey, pointing to other indicators such as job postings, remains “pretty bullish” about the employment picture, at least for the first half of 2018. She expects the jobless rate during that time “to stay at or below the natural rate of unemployment.” But she warns job growth will be constrained by the lack of qualified labor in areas from homebuilding to health care.
Local wages remain relatively low, despite an 8.1 percent increase in private industry wages from the first quarter of 2016 to the first quarter of 2017. “The issue is that our baseline was so low,” Bailey says. “We are about 16 percent below the national average pay, according to the Bureau of Labor Statistics.”
While that’s starting to turn around, she says, “we’re going to have to outpace the nation in terms of wage appreciation in Colorado Springs, probably at least for a few years, before we get to that national average for a city our size.”
It looks like 2017 will be another record-breaking year for home sales in the Pikes Peak region. Through the first 11 months, home sales totaled 15,133, a little less than 200 shy of 2016’s record of 15,318, according to the Pikes Peak Association of Realtors.
Will 2018 be more of the same?
“I wish my crystal ball was not as fuzzy as it is,” says Debbie Howes, a broker at Re/Max Performance in Woodland Park and board chairwoman of the Pikes Peak Association of Realtors. But signs point to continued growth. Realtor.com expects the Springs to remain one of the nation’s hottest markets next year; the online real estate service ranks the Springs at No. 8 in its national housing forecast. It predicts median prices in the Springs will rise 5.7 percent in 2018 over this year, with annual sales growing by 3.1 percent. The forecast includes single-family homes, townhomes and condominiums.
The UCCS Economic Forum projects a 5.5 percent increase in median home prices for 2018 and a 5 percent increase in home sales.
Another thing expected to rise: mortgage rates. Lawrence Yun, chief economist at the National Association of Realtors, expects mortgage rates to hit 4.5 percent by the end of 2018 as the Federal Reserve works to unwind its balance sheet and continues to raise interest rates. Even so, “rates will still be at very attractive levels,” says Richard Wobbekind, executive director of the Business Research Division for the Leeds School of Business.
A tight inventory will limit sales, Howes says. But, she adds, “I do anticipate inventory will pick up come March, because that’s kind of our historic cycle.”
With December figures still to come, the pace of Colorado Springs-area homebuilding in 2017 already has surpassed that of last year. Permits issued to builders and individuals for the construction of single-family homes in El Paso County totaled 3,253 during the first 11 months of the year, according to the Pikes Peak Regional Building Department; that’s 16 over 2016’s total of 3,237 permits.
Mark Long, owner of Vanguard Homes and immediate past board president of the Colorado Springs Housing and Building Association, expects growth to continue in 2018; he predicts a “moderate increase” of 5 to 10 percent in building permits.
A labor shortage and rising material costs are issues, Long acknowledges. “I would tell you, however, that we will overcome those if the demand is there, and I believe the population growth and the job growth are going to continue to fuel demand.”
Statewide, the Colorado Business Economic Outlook 2018 projects a 9.8 percent increase in new single-family, detached home permits, down slightly from an expected 9.7 percent in 2017.
Colorado Springs sales tax collections as of November were up 4.9 percent from the same period a year before, despite year-over-year drops for three straight months. But those months had to compare to the months following the massive July 2016 hailstorm, which boosted revenue from auto dealers and building material suppliers.
“Consumer confidence is very high,” Bailey says.
A survey by Elevated Insights, a local market research firm, found local consumer confidence 24 percent higher than national indices.
Bailey points to luxury vehicle sales as another indication of consumer confidence. “People only make those purchases if they feel good about their finances,” she says, and while there has been some fluctuation in sales, they remain strong overall.
“To me, that’s another indicator that people feel good, she says, “not only today, but they feel they are going to be able to make those payments moving forward for those luxury goods.”
Binnings says businesses, particularly on the south side of the Springs, could be pinched by deployments out of Fort Carson. More than 7,500 Fort Carson soldiers are on official orders to Afghanistan next spring and hundreds more are expected to join them.
While local numbers on holiday sales are yet to come, hopes are high as national reports show shoppers spent at a brisk pace; a Mastercard SpendingPulse report released Tuesday showed holiday sales up 4.9 percent from the year before.
The 2016 tourism season set records for visitors and spending; the annual visitor profile from Longwoods International, a tourism research company, found visitor numbers were up 12 percent from 2015 to 23 million, while spending rose 14 percent to $2.25 billion . Although 2017 numbers won’t come until mid-February, Doug Price, CEO of the Colorado Springs Convention and Visitors Bureau, expects they’ll show 2017 was “another banner tourism year here in the Pikes Peak region.”
One sign of that banner year: record traffic on the Pikes Peak Highway. As of Dec. 18, over 487,000 visitors had taken the 19-mile drive this year up the highway to the summit, breaking the previous record of 482,963 set in 2016. Meanwhile, collections from the city’s tax on hotel rooms and rental cars were up 14.1 percent from the same period a year before as of November.
Hotel occupancy rates, though, are a mixed bag. As of October, occupancy levels in Colorado Springs had fallen year over year for five straight months; November, though, saw occupancy edge up from the year before.
Average room rates at Springs hotels, meanwhile, have kept rising, and Price expects that to continue.
“Nationally there is an expected softening of occupancy,” he said via email. “And when you look at the strong growth the past several years, it would be expected that growth would slow.”
More international flights out of Denver International Airport, including upcoming new flights to London, Zurich and Paris, could be a big plus for Pikes Peak tourism. “A recent study initiated by the Colorado Tourism Office shows that Colorado Springs would be the top location to visit in Colorado among international travelers considering coming to the state,” Price said. “We would attribute that to the success of our international marketing program.”
Tourism employment growth in the state is expected to continue for the ninth consecutive year, though the rate is projected to slow from 2.3 percent this year to 1.9 percent in 2018, according to Colorado Business Economic Outlook 2018.