At Vectra Bank Colorado’s recent economic forecast event, “New Opportunities and Risks in 2017 – Adjusting, Adapting and Thriving in Changing Business Environments,” economic experts Burt White, managing director of research and chief investment officer for LPL Financial, and economist Patricia Silverstein, Development Research Partners discussed Denver and Colorado growth, doing business in a changing political and economic climate, investment considerations during a boom market, interest rates, Gross Domestic Product growth and how it will all impact business.
“Running on all cylinders this year,” is how Silverstein explained Colorado’s growth and success. With net migration at an all-time high of 45,000 last year, Silverstein expects 2017 migration to be slightly less at about 40,000. Because of high housing costs in Colorado–the 16th highest in the country–and the importance for businesses to attract top talent within the growing Millennial workforce population, Silverstein says businesses will need to closely watch staffing needs and may need to increase compensation and benefits to attract new workers.
Because Generation Y has not yet reached its income potential, Generation X is spending the most dollars and driving the economic activity. As Millennials soon come into their income potential years, age 35-55, Silverstein says they will play a larger role in strengthening the economy. Silverstein expects retail trade activity to increase in 2017, but informed participants to expect inflation “taking a bigger bite out of our income this year,” expecting inflation to reach 3 percent in 2017.
Silverstein again expects Colorado to rank in the top 10 states for employment in 2017. While growth has been slow for some areas in Colorado, like Grand Junction, all areas of state saw expansion.
“Every single industry expanded in metro Denver region, said Silverstein. “This was the fourth year that we’ve seen growth in the state’s super sectors. In fact, all sectors have enjoyed growth at historic rates.” Silverstein’s report on Colorado’s 2016 growth clusters comes out today.
Silverstein noted that these historic numbers don’t take into consideration Colorado’s sole proprietors and innovator population. Sole proprietors make up 25 percent of Colorado’s workforce. In fact, Colorado is the 5th most concentrated state of sole proprietors in country.
Burt White focused on the national economic forecast and investing. At last year’s conference White predicted a 70 percent chance of recession and even potential negative interest rates. One year later we have a forecast of strong growth with no chance of recession.
While a positive that the country avoided recession, White told the audience that the low 2 percent growth in GDP has slowed our post-recession recovery and dubbed it “the worst recovery ever.”
White informed attendees that while low interest rates may have been positive for borrowing, it has also hampered consumer’s ability to increase savings, going as far as to call it a “disservice to economy and growth.” He noted that the average number of interest rate hikes following a recession is 16, and that the lowest number of increases in history was 10. Interest rates following this past recession is only 2 percent. At three increases per year average since the recession that rate will take nearly five years to get back to a healthy GDP.
“We receive two times more interest in savings as when we pay interest,” said White. “It (lack of interest on savings) hurts the people who need it the most.”
White predicts 2.5 to 3 percent growth in 2017 and earnings in the mid-single digit or high single digit earnings and return.
Contrary to what economists thought would happen, when interest rates were at the bottom, spending went down and people saved more. In 1980 a person needed $763,395 to have $100,000 in interest income for retirement. By 2000, a person needed $2 million and today one needs $14 million to make $100,000 from interest income on savings. White then assured attendees that the country does not need much growth to get back to a healthy 3 percent GDP within a year and a half.
White also urged people to invest in stocks, even in this bull market. He told them that stock ownership is lower than ever, with only 52 percent of consumers invested in stocks, but 49 percent of people playing the lottery. White urged investors to embrace equities, but to also understand how low rates are truly impacting us and keeping people from their potential.
He reminded people that inflation has been on the rise for some time. While inflation on luxury items like electronics, clothing and furniture is below zero, inflation on large budget items like college and healthcare is closer to 5-7 percent.
“Luxuries are cheap, but necessities are expensive,” White said.
While the pro-growth promise of the new administration has potential for the country, White cautioned that, historically, it’s excesses that cause recessions.
“It ain’t over until ‘overs’ are everywhere…over borrow, over hire, over spend, over leverage,” said White to drive home the point. “We were over extended and over in 2009. Today, we don’t see overs, but a pro-growth agenda could also create too many overs that could drive another recession.”
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