2017 Forecast 012317 - Metro DenverGross domestic product will grow at a 2.3 percent pace in 2017, below the historic average of 2.7 percent, but faster than 2016 with rising consumer

2017 Economic Forecast for Metro Denver

Including Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties

January 2017

Prepared By:

Development Research Partners specializes in economic research and analysis for local and state government and private sector businesses. Founded in 1994, Development Research Partners combines extensive experience in real estate economics and economic development to provide clients with reliable consulting services in four areas of expertise:

Economic and Demographic Research Research in support of business and community activities, ranging from community profiles to evaluating and forecasting economic and market conditions.

Industry Studies

Specialized research projects including industry cluster research, industry trends analysis, and strategic competitive analysis.

Fiscal and Economic Impact Analysis

Comprehensive custom analysis and analytical tools to evaluate and forecast site‐specific activities and model business and government costs and benefits.

Real Estate and Public Finance Economics

Analysis and strategy for infill redevelopment, adaptive reuses, and property development including market and feasibility studies, public investment analysis, and public‐private partnering opportunities.

Patty Silverstein, President & Chief Economist

David Hansen, Senior Economist

10184 West Belleview Avenue, Suite 100 Littleton, Colorado 80127

www.DevelopmentResearch.net 303.991.0070

TABLE OF CONTENTS

Metro Denver Economic Development Corporation | January 2017

Table of Contents

EXECUTIVE SUMMARY ................................................................................................................................. i

U.S. ECONOMY ............................................................................................................................................ 1

International Economy ................................................................................................................................................ 1 Gross Domestic Product .............................................................................................................................................. 2

Household Spending .......................................................................................................................................................... 2 Business Spending .............................................................................................................................................................. 4

Government Spending ....................................................................................................................................................... 4 Net Exports ......................................................................................................................................................................... 5

Interest Rates .............................................................................................................................................................. 6 Employment & Unemployment ................................................................................................................................... 6 Income ........................................................................................................................................................................ 7 Inflation ...................................................................................................................................................................... 8

COLORADO ECONOMY ................................................................................................................................ 9

Employment & Unemployment ................................................................................................................................... 9 Colorado Exports ....................................................................................................................................................... 12 Population ................................................................................................................................................................ 13 Income & Spending ................................................................................................................................................... 13 Inflation .................................................................................................................................................................... 14

METRO DENVER ECONOMY ...................................................................................................................... 16

Population ................................................................................................................................................................ 16

Income ...................................................................................................................................................................... 18

Special Analysis: Consumer Spending Patterns .......................................................................................................... 19

Residential Real Estate .............................................................................................................................................. 21 Employment & Unemployment ................................................................................................................................. 23

Industry Overviews ................................................................................................................................................... 24

Natural Resources & Construction ................................................................................................................................... 24 Manufacturing .................................................................................................................................................................. 28 Wholesale & Retail Trade ................................................................................................................................................. 29 Transportation, Warehousing & Utilities ......................................................................................................................... 30 Information ...................................................................................................................................................................... 31

Financial Activities ............................................................................................................................................................ 31 Professional & Business Services ..................................................................................................................................... 32 Education & Health Services ............................................................................................................................................ 33 Leisure & Hospitality ........................................................................................................................................................ 34 Other Services .................................................................................................................................................................. 35

Government ..................................................................................................................................................................... 35 Industry Clusters ....................................................................................................................................................... 36

DATA APPENDIX ........................................................................................................................................ 39

REFERENCES .............................................................................................................................................. 40

Metro Denver Economic Development Corporation | January 2017 | Page ie i

Executive Summary

U.S. Economy

The United States continued on an expansionary path through 2016 despite a slowdown in the first half of the year. The nation’s businesses generated nearly 2.5 million jobs, the unemployment rate fell to 4.9 percent, and income continued to rise. Several states were impacted by the decline in energy prices with preliminary data suggesting seven states lost employment in 2016 including energy states such as Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming. The size of employment gains differed greatly across states, ranging from ‐3.1 percent in Wyoming to +3.4 percent in Oregon.

Gross domestic product will grow at a 2.3 percent pace in 2017, below the historic average of 2.7 percent, but faster than 2016 with rising consumer confidence, increased consumption, new construction, and improved business investment. The unemployment rate fell to 4.9 percent in 2016, recording the lowest unemployment rate since 2007. As GDP and employment expand, the nation’s unemployment rate will drop to 4.8 percent and personal income will increase 4.8 percent in 2017.

With significant improvement in the national employment situation and strong consumption measures, the Federal Reserve agreed to increase the target federal funds rate to a 0.5 percent to 0.75 percent range and it foresees three rate hikes in 2017. The increase in the federal funds rate is a reflection of the strength of the national economy.

The price of oil is expected to rebound somewhat in 2017, averaging about $50 per barrel after falling dramatically to $30 per barrel in February 2016 from a recent peak of $106 per barrel in June 2014. The higher price will improve the oil and gas industry’s operating position and support industry employment. Higher prices will also be reflected in the overall level of consumer prices as inflation increases modestly.

In addition to potentially rising interest rates and inflationary pressure, the greatest risks to U.S. economic growth may include anti‐globalization policies and international political tension, global and financial market uncertainty surrounding Brexit, and ongoing conflicts in the Middle East. Additionally, unexpected increases or decreases in energy prices remain a risk. As these risks influence business and consumer confidence, which in turn influence overall spending patterns, stability in these situations is needed for the U.S. recovery to remain on track.

Colorado Economy

Colorado will likely be among the top 10 states for employment growth during 2016 and will post a 2.2 percent increase in employment in 2016. The employment base is expected to increase by 2.1 percent in 2017 and reach 2.65 million workers, representing the addition of 54,500 jobs. The natural resources and construction, leisure and hospitality, and education and health services supersectors are expected to lead the state in employment growth through 2017.

Personal income growth slowed in 2016 but will increase to 5 percent in 2017 due to increasing wages, rising housing prices, higher transfer payments, and increased investment. Low unemployment and rising personal income bode well for consumer spending in 2017. Retail trade sales increased by about 3.8 percent in 2016, reflecting a pullback in the first half of the year and a slower rate than 2015. However, retail trade sales are expected to increase at a faster pace of 4.6 percent in 2017. Colorado’s expanding employment base, quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state.

Metro Denver Economic Development Corporation | January 2017 | Page iie i

Executive Summary

Metro Denver Economy

Metro Denver experienced job growth in each supersector in 2016 for the fourth consecutive year, leading to a gain of 45,400 jobs across the seven‐county area. Employment growth in Metro Denver continued to outpace the nation and the state. In 2017, job gains will continue to be broad‐based but at a slower 2.4 percent pace as labor markets tighten and unemployment remains low. The three fastest growing supersectors in 2016 will likely be among the fastest growing in 2017 including natural resources and construction, education and health services, and leisure and hospitality. Financial services is also expected to re‐emerge as one of the fastest growing supersectors in 2017. The unemployment rate in Metro Denver is expected to average about 3.6 percent in 2017, an increase from 2016 but still one of the lowest rates since 2000. Metro Denver’s expanding economy will continue to be supported by a strong entrepreneurial environment, business friendly policies, and a talented workforce.

Employment growth, increased income, and strong consumer confidence will contribute to healthy consumer spending activity, higher retail sales, and increased sales and use tax revenue for local governments in the Metro Denver region. Demographic changes will boost markets related to housing and healthcare, while some markets will continue to struggle with competition from e‐commerce and changing consumer preferences. Consumer spending will also be shaped by increased labor force participation and earnings of the 65 years and over demographic, boosting work‐related consumer expenditure categories such as apparel and transportation.

Strong net migration and positive economic activity will continue to push home prices higher. However, 2017 will mark the first year since 2010 that the population in Metro Denver will not increase at a faster pace than the state. Continued residential construction activity, slower sales activity of existing homes, and potential interest rate increases will ease home price pressures. In 2016, multi‐family comprised the majority of the new residential units in the market. However, the balance will shift back to single‐family detached units in 2017, which is more indicative of historic norms.

All four commercial property types (office, industrial, flex, and retail) recorded strong fundamentals in 2016, reporting low vacancy rates and rising average lease rates. While commercial construction will continue at a brisk pace in 2017, much of the activity will be the completion of projects already under construction, with a more limited number of new projects announced.

The strength and diversity of the Metro Denver economy will ensure that the region continues to thrive in 2017. Ongoing development of the FasTracks rail system is opening up new opportunities for housing and nonresidential development. This investment, along with continued improvements at Denver International Airport, recently passed bond issuances for some of the region’s public K‐12 school districts, and a keen focus on entrepreneurship and small business development, provide pieces of the important infrastructure that supports Metro Denver’s vibrant economy.

U.S. ECONOMY

Metro Denver Economic Development Corporation | January 2017 | Page 1 1

U.S. Economy

The United States continued on an expansionary path through 2016 despite a slowdown in the first half of the year. The nation’s businesses generated nearly 2.5 million jobs, the unemployment rate fell to 4.9 percent, and income continued to rise. Several states were impacted by the decline in energy prices with preliminary data suggesting seven states lost employment in 2016 including energy states such as Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming. The size of employment gains differed greatly across states, ranging from ‐3.1 percent in Wyoming to +3.4 percent in Oregon.

Most analysts expect U.S. economic activity to strengthen in 2017 through increased consumer spending, new construction activity, and improved business investment. The unemployment rate is expected to fall to 4.8 percent in 2017, recording the lowest unemployment rate since 2007. With significant improvement in the national employment situation and strong consumption measures, the Federal Reserve agreed to increase the target federal funds rate to a 0.5 percent to 0.75 percent range and it foresees three rate hikes in 2017. The increase in the federal funds rate is a reflection of the strength of the national economy, because the Federal Reserve believes the economy is expanding at a moderate pace allowing it to support higher interest rates.

The price of oil is expected to rebound somewhat in 2017, averaging about $50 per barrel after falling dramatically to $30 per barrel in February 2016 from a recent peak of $106 per barrel in June 2014. The higher price will improve the oil and gas industry’s operating position and support industry employment. Higher prices will also be reflected in the overall level of consumer prices as inflation increases modestly.

In addition to potentially rising interest rates and inflationary pressure, the greatest risks to U.S. economic growth may include anti‐globalization policies and international political tension, global and financial market uncertainty surrounding Brexit, and ongoing conflicts in the Middle East. Additionally, unexpected increases or decreases in energy prices remain risks. As these risks influence business and consumer confidence, which in turn influence overall spending patterns, stability in these situations is needed for the U.S. recovery to remain on track.

International Economy

According to the International Monetary Fund (IMF), slower than forecasted growth in 2016 will be followed by a modest recovery in 2017. The IMF expects the global growth rate to average 3.1 percent in 2016, but increase to 3.4 percent in 2017. Weaker than expected growth in the United States was a major factor in the IMF’s downward revision for 2016. The subdued outlook for 2017 is partly a reflection of uncertainty involving Brexit. The IMF notes that although the financial market reaction to the U.K. referendum was contained, the increase in economic, political, and institutional uncertainty along with potential reductions in trade flows is expected to have negative macroeconomic consequences. On a positive note, financial markets indicate improved expectations for emerging markets and the IMF expressed reduced concern about China’s near‐term prospects. Additionally, India has recorded robust growth and a healthy rate of growth is expected for other emerging markets in Asia. Economic growth in the advanced economies is expected to rise from 1.6 percent in 2016 to 1.8 percent in 2017. Euro Zone output decreased from 2.1 percent in 2015 to 1.6 percent in 2016, but should recover somewhat to 1.8 percent in 2017.

The value of output in the emerging economies is expected to grow from 4.2 percent in 2016 to 4.6 percent in 2017. Emerging economies will be bolstered by some recovery in commodity prices and the expectation of lower interest rates in advanced economies. Additionally, Russia is expected to stabilize after adjusting to shocks in oil prices and sanctions while the effects of recessionary conditions in Brazil are likely to ease.

U.S. ECONOMY


U.S. Economy

Gross Domestic Product

Throughout this publication, (e) is used to represent data that are estimated in the absence of data for all 12 months of 2016; (f) indicates a forecast figure.

Gross Domestic Product: +1.7 percent in 2016(e); +2.3 percent in 2017(f).

Gross domestic product (GDP)—the total value of goods and services produced in the U.S. economy—is a key gauge of the nation’s economic health. Between 1980 and 2015, annual real GDP growth averaged about 2.7 percent; growth above that trend has often meant falling unemployment rates, and below‐trend growth

resulted in a stagnant economy.

Real GDP growth averaged 2.0 percent between 2010 and 2016. National real GDP reported ten consecutive quarters of growth between the second quarter of 2014 and the third quarter of 2016. Positive contributors to GDP growth over the past year included consumption of durable goods, residential fixed investment, and nondefense federal spending. Additionally, export activity rebounded in the third quarter, correcting a year‐to‐date decline through the first two quarters. Concurrently, growth in imports declined markedly through the third quarter of 2016 compared with 2015, slowing to 0.7

percent from 4.6 percent in 2015. With strong personal consumption and continued business spending, annual growth is forecast to be 1.7 percent in 2016 and accelerate to 2.3 percent in 2017.

Reasons for increased growth are easier to recognize when GDP is broken down into its four components: 1) household spending on goods and services; 2) business spending on software, equipment, and real estate; 3) government spending on goods and services; and 4) net exports, or foreign purchases of U.S. goods less our imports.

Household Spending

Household spending contributes about two‐thirds of national output and has a long‐term average annual growth rate of about 2.7 percent. In 2016, consumer confidence reached its highest level and the unemployment rate dropped to its lowest level since mid‐2007. Subsequently, consumer‐spending growth accelerated back up to 2015 levels in the third quarter of 2016 after sluggish growth in the first half of the year. Several factors will influence consumer spending in the year ahead.

U.S. ECONOMY


U.S. Economy

Strong consumer confidence. As 2016 ended, consumer confidence once again approached pre‐recession levels, after a dip through 2015 and the first half of 2016. Consumers’ assessment of their present situation and expectations continued to improve. Consumers’ outlooks are optimistic heading into 2017.

Wage growth continues. After years of up and down growth in average hourly earnings on an inflation‐adjusted basis, earnings for private nonfarm employees increased at a stronger rate through 2015 and 2016. Low unemployment rates have contributed to positive wage pressure. Moody’s Analytics reported the U.S. had a near record number of open job positions in their latest outlook. Combined with few layoffs and robust job creation, wage growth should remain favorable into 2017.

Home price increases adding to household wealth. According to the S&P/Case‐Shiller home price indices, the national home index was up 5.5 percent between September 2015 and 2016, and surpassed the peak set in July 2006. The increase in housing prices provides a wealth effect to homeowners. Many homeowners utilized stronger home values and low interest rates for cash‐out refinancing and second mortgages. After a large bump in 2015, data from Freddie Mac indicate the volume of cash‐out refinancing continued to grow in 2016, increasing more than 13 percent year‐to‐date through the second quarter of 2016 compared with the same quarters in 2015. Meanwhile, owners’ equity in real estate as a percent of value continued to climb, approaching 60 percent or near levels typical of the 1990s and early 2000s. The percent had dipped as low as 36 percent during the great recession.

Equities contributing modestly to household wealth. About 52 percent of American adults were invested in the stock market in 2016, down from 65 percent in 2007, according to Gallup’s annual Economy and Personal Finance survey. Based on the survey, middle‐class adults and those younger than 35 years old are less likely to

invest. The stock market is an economic indicator that is influenced by daily fluctuations in the economy. For most of 2016, gains in the major indices were muted. Volatile energy prices, Brexit, and the election seemed to weigh on investors. However, a surge in November pushed over‐the‐year gains past the S&P 500’s long‐term average annual gain of 6 percent from 2000 to 2015, led by the Dow Jones Industrial Average, which posted an increase of 9.7 percent over‐the‐year. Meanwhile, the S&P 500 was up 7.6 percent and the NASDAQ was up 6.3 percent. Looking ahead, energy prices will continue to influence markets.

Household borrowing activity strengthens, but the debt‐service ratio is stable. After the housing bubble burst in 2007, total household debt plunged compared with prior years. The housing component of the recession heavily influenced the mortgage debt portion of household debt. Growth in household debt has been positive since the fourth quarter of 2011. Growth in mortgage debt turned positive in 2013 and continued to increase through 2016. Consumer credit also continued to expand through 2016. Despite more household borrowing activity, the ratio of household debt service to disposable personal income hovered around 10 percent through 2016, well below the high of 13.2 percent in the fourth quarter of 2007.

Mixed influence of declining energy prices. While consumers have benefited from low prices, the energy industry contracted with losses of many high‐paying jobs. OPEC announced supply cuts, which analysts estimate

U.S. ECONOMY


U.S. Economy

will support prices between $50 and $60 per barrel in 2017. Ultimately, the impact is unclear as prices may negatively affect consumers, but will likely boost U.S. industry.

Concerns about medical costs increasing. The ability to pay for unexpected medical costs remains a top financial concern according to Gallup’s annual Economic and Personal Finance Survey. The survey indicated that the percent of Americans worried about an unexpected medical cost increased from 55 percent in 2015 to 60 percent in 2016. For comparison, the rate was between 45 and 50 percent in the early 2000s. In addition, the percent worried about not being able to pay for normal healthcare increased by 3 percentage points to 45 percent.

Business Spending

During the Great Recession, corporate profits took a major hit as consumers purchased less goods and services, investors were cautious of further economic declines, and Wall Street reeled from the impact of the housing crisis. Since the low of 2008, corporate profits increased significantly but started to plateau in 2012. Corporate profits peaked in the fourth quarter of 2014 before dipping by nearly 20 percent by the fourth quarter of 2015. Profit levels rebounded in 2016, but remained slightly below their peak. Analysts have attributed the slowdown in corporate profits in part to the strong dollar that has negatively impacted exports. Falling energy prices also affected profits of oil and gas companies that were among the nation’s most profitable for many years. Despite the dip, corporate profits are expected to remain on a generally positive trend through 2017.

After 23 consecutive quarters of over‐the‐year growth in real nonresidential private fixed investment, growth decreased in 2016. Investment in structures declined throughout 2015 and 2016. Investment in equipment fell in 2016. Equipment represented the largest absolute drop from 2015, declining by $83.6 billion through the third quarter of 2016 compared with the same quarters in 2015. The largest declines were in transportation equipment and in other equipment, a category that includes mining and oil field machinery. Businesses continued to invest in information processing equipment, and categories that include communication equipment, medical equipment, and office and accounting equipment, among other things.

Government Spending

According to the Congressional Budget Office (CBO), the federal budget deficit for fiscal year 2016 is forecast to be $590 billion as of August 2016, 35 percent higher than 2015. The federal deficit as a percentage of GDP is projected to increase to 3.2 percent, marking the first increase after six consecutive years

U.S. ECONOMY


U.S. Economy

of declines since peaking at 9.8 percent in 2009. In 2017, the CBO estimates the deficit will increase slightly to $594 billion, and comprise a slightly smaller 3.1 percent of GDP.

According to the CBO’s economic forecast, which serves as the basis for its budget projections, the larger deficit in 2016 was partially due to lower than expected revenues that increased more slowly than outlays. Federal outlays in 2016 comprised a higher percentage of GDP than 2015, increasing from 20.4 percent to 21.1 percent. Outlays are projected to remain at 21 percent of GDP in 2017. The increase is mainly due to a 6 percent rise in nominal mandatory spending for Social Security and Medicare, and an 11 percent increase in net interest outlays. Overall, the CBO expects that the economy will expand at a solid pace through 2017 with increased hiring, employment, and wages.

The International Monetary Fund’s (IMF) World Economic Outlook Database reports that the U.S. government gross debt in 2016 was estimated to be more than 108 percent of GDP, the fifth highest rate of the world’s advanced economies. The IMF estimates that gross debt will remain at about 108 percent of GDP in 2017. The countries with the highest gross debt are Japan (250 percent), Greece (183 percent), Italy (133 percent), and Portugal (128 percent). In terms of net debt, or gross debt less the value of financial assets, the U.S. also has the fifth highest rate at an estimated 82.2 percent in 2016. Net debt is projected to expand to 84.4 percent of GDP by 2021.

The 2014 Census of Government: Annual Surveys of State and Local Government Finances reported that total revenues by state and local governments increased 6.7 percent between 2013 and 2014 to nearly $3.6 trillion. Further, 63 percent of the increase in revenue was attributed to growth in insurance trust revenue, which rose 25.7 percent between 2013 and 2014 to $706.6 billion. The major sources of general revenue for state and local governments were from taxes (41 percent), insurance trust (19.4 percent), and current charges (18.3 percent). Total expenditures for state and local governments in 2014 were $3.3 trillion, an increase of 2.6 percent compared with the 2013 level.

Net Exports

In the third quarter of 2016, net exports decreased to ‐2.5 percent of nominal GDP, the lowest level since 2009. The change was a combination of a boost in the value of exports in the third quarter and tepid growth in imports. In real terms, third quarter exports increased an estimated 10 percent over the quarter while imports increased 2.2 percent. However, year‐to‐date export growth in 2016 was stagnant compared with the same time in 2015. Over the past few years, the export component of GDP slowed from 12 percent growth in 2010 to 0.1 percent in 2015. Major U.S. exports include transportation equipment, computers and electronic products, chemical products, and machinery. The nation’s largest trading partners in terms of exports are Canada, Mexico, China, Japan, and the United Kingdom.

The greatest risk to U.S. exports currently is continued appreciation of the dollar. U.S. exports have now declined for two consecutive years following five years of growth and the trade‐weighted value of the dollar rose to its highest point since 2002. The strong dollar makes U.S. goods more expensive for consumers in other

U.S. ECONOMY


U.S. Economy

countries to purchase. The strength of the dollar is also a function of a weak global economy. Other risks include a growing anti‐globalization sentiment in many countries, global unrest, and slowing investment.

Interest Rates

Prime rate: 3.5 percent in 2016; 4.2 percent in 2017(f).

The Federal Reserve increased its target federal funds rate for the first time in seven years in December 2015, raising the range to 0.25 to 0.5 percent. The December 2016 conference of the Federal Open Market Committee (FOMC) reported that economic activity expanded at a moderate pace and the labor market continued to strengthen. The committee reported that household spending has been rising moderately, but business fixed investment has remained soft. Despite a slight increase in inflation since the beginning of 2016, the rate is still below the committee’s longer‐run objective of 2 percent as a result of declines in energy prices and in prices of non‐energy imports. With this current economic outlook, the FOMC agreed to increase the target federal funds rate to a 0.5 percent to 0.75 percent range and it foresees three rate hikes in 2017.

Employment & Unemployment

Employment: +1.7 percent in 2016(e); +1.6 percent in 2017(f).

Unemployment: 4.9 percent in 2016(e); 4.8 percent in 2017(f).

U.S. employment continued to grow in 2016, albeit at a slower rate of 1.7 percent compared with 2.1 percent in 2015. The preliminary not‐seasonally adjusted employment level in November 2016 was about 6.9 million jobs above the pre‐recession peak of 139.5 million jobs in November 2007. The pace of job growth in 2016 started to fall in the second quarter as the unemployment rate declined. As of November 2016, the median number of weeks individuals over the age of 16 remained unemployed was a little over 10 weeks, which was down from 10.7 weeks in November 2015, and the lowest level since peaking at 25.8 weeks in April 2010. The labor force participation rate was up slightly from a year ago, to 62.7 percent in November, while the U.S. unemployment rate fell to 4.4 percent in November.

The White House Council of Economic Advisors stated that the country added more jobs over the past three years than in any other three‐year period since 2000. The council also reported that the unemployment rate in November was the lowest level since April 2008. Further, the unemployment rate has consistently fallen much

U.S. ECONOMY


U.S. Economy

faster than economists expected throughout the economic recovery, reaching 5 percent or below considerably earlier than projected.

The Manpower Employment Outlook Survey found hiring expectations in the U.S. weakened slightly through the first quarter of 2017 compared with the prior quarter. The percentage of employers planning to increase employment levels fell 3 percentage points to 19 percent between the fourth quarter of 2016 and the first quarter of 2017. The percentage of companies planning to reduce employment levels was unchanged over‐the‐year and over‐the‐quarter, with 6 percent of companies planning to lay off employees. The percentage of companies planning to maintain staffing levels (73 percent) was 1 percentage point lower than the prior year’s level, but 4 percentage points above the previous quarter. Survey analysts stated that recent political events have caused U.S. employers to remain cautiously optimistic and will keep their headcount stable for the next three months. Additionally, analysts stated there remain significant differences between industries and employers demanding increasingly specific skills to fill positions.

Income

Total Personal Income: +3.6 percent in 2016(e); +4.8 percent in 2017(f).

Personal income has several components: earnings from work, asset‐based income, and government social insurance (transfer) payments. Slack in the labor market in previous years led to slow growth in wage‐based income. However, real wages have been increasing as the national unemployment rate decreased. As the unemployment rate continued to fall in 2016, employers were trying to fill open positions from a smaller pool of available workers, and discovered that they needed to increase wages and/or offer more extensive benefits to attract and retain workers. The tight labor market will lead to wage gains in 2017. Additionally, the push for higher minimum wages in many areas of the country may further boost wage levels. Twenty‐nine states have a minimum wage higher than the federal minimum. Fourteen states have increases that take effect in 2017. In many cases, increases will be phased in over several years and will far outpace inflation.

The national median household income in 2015 was $55,775, which was 3.9 percent higher than the previous year’s level and was the fastest over‐the‐year growth rate for the nation since 2007 when income increased 4.7 percent. Median household income decreased in 2009 and 2010, falling 3.5 percent and 0.3 percent, respectively. On an inflation‐adjusted basis, the U.S. Census Bureau notes that 2015 marked only the third

U.S. ECONOMY


U.S. Economy

consecutive year with a statistically significant increase in the national median household income. After adjusting for inflation, median household income in 2015 was still ‐1.6 percent below the peak in 2007.

Overall, personal income growth slowed slightly in 2016, falling to 3.6 percent. Growth is expected to accelerate in 2017 leading to a 4.8 percent increase.

Inflation

Consumer Price Index: +1.3 percent in 2016; +2.2 percent in 2017(f).

The Federal Reserve target inflation rate is 2 percent in the medium‐term, and the average in 2016 increased to 1.3 percent from 0.1 percent in 2015. Inflation was influenced in large part by energy prices in 2016. In 2016, there was a slower decline in energy prices with a smaller influence on overall inflation than in 2015. From 2014 to 2015, the average spot price of crude oil fell by nearly 51 percent, ultimately offsetting a 1.8 percent increase in core inflation, which is total inflation less food and energy. In 2016, the average crude oil price for the year declined by about 13 percent. The average monthly price bottomed out in February at about $30.00 per barrel based on data from the U.S. Energy Information Administration (EIA). Prices fluctuated between about $45 and $50 per barrel in the latter half of the year.

Another factor was monetary tightening as the Federal Reserve decided in December 2015 to increase its target federal funds rate, raising the range to 0.25 to 0.5 percent. Monetary tightening typically dampens inflation as consumers have less money to spend and prices of goods and services fall in response. However, the change in the Fed policy was modest amid strengthening labor markets and economic conditions.

Looking ahead, the most recent EIA forecast of crude oil prices predicted an average of about $50 per barrel in 2017. U.S. production is expected to decline in 2017 while consumption will remain strong, thereby supporting a higher price. Further, the announcement that OPEC will decrease production in 2017 is also expected to support a moderately higher price.

Food price inflation is expected to pick up in 2017. According to a forecast of consumer prices by the Economic Research Service at the U.S. Department of Agriculture (USDA), food prices may increase 1.5 to 2.5 percent in 2017, an increase from between 0.25 and 1.25 percent in 2016. While the USDA expects beef and pork prices to decline in response to expanded herds from lower feed costs and less drought conditions, poultry prices are expected to jump between 2 and 3 percent. Other commodities that could have higher prices in 2017 include dairy, fish and seafood, fresh fruit, sugar, and cereals.

Projections from the Federal Reserve Board indicate members expect core inflation to remain stable, at around 1.8 percent through 2017. While the growing economy will boost inflationary pressure, FOMC policy will stabilize inflation near its target. The FOMC foresees three rate hikes in 2017 and additional monetary tightening to meet its longer‐run objective of 2 percent inflation.

National Economy Summary

The United States continued on its expansionary path, as all jobs lost during the recession were recovered by mid‐2014 and employment in 2016 grew by an estimated 1.7 percent. The employment growth rate is expected to increase at a slower pace, falling to 1.6 percent in 2017. Real gross domestic product will grow at a 2.3 percent pace in 2017, which is still below the historic average of 2.7 percent, spurred by rising consumer confidence, increased consumption, and rising business investment. As GDP and employment expand, the nation’s unemployment rate will drop to 4.8 percent and total personal income will increase 4.8 percent in 2017. Inflation will continue to rise due to higher energy prices and rising housing costs, lifting overall prices up by 2.2 percent.

COLORADO ECONOMY


Colorado Economy

Colorado is expected to be among the top 10 states for employment growth during 2016, although final state employment data for the year will not be released until March. Between 2012 and 2015, Colorado ranked among the top five states for job growth, adding nearly 283,000 jobs over the four‐year span. Preliminary numbers suggest 2.2 percent state employment growth in 2016, which is higher than the estimated national growth rate of 1.7 percent. The employment base will expand to nearly 2.6 million workers in 2016, representing the addition of about 56,000 jobs.

Colorado’s growing labor market is supported by a diverse industry base and dynamic business climate. Colorado’s expanding employment base, high quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state. Colorado’s economy is expected to report positive trends through 2017 across many economic indicators.

The state has several unique advantages. The expanding entrepreneurial community, increasing start‐up activity, and highly educated workforce make Colorado an attractive location for business. In 2016, the state ranked:

…third on CNBC’s list of the nation’s best states for business with high rankings for its workforce, economy, quality of life, technology and innovation, business friendliness, and access to capital.

…third for its technology employment concentration (9 percent in 2015) on the CompTIA’s Cyberstates 2016 report.

…fifth best state for business by Forbes. Colorado was noted for its high educational attainment, young population, job growth, and robust economy.

…fifth best state economy by WalletHub based on measures of economic activity, economic health, and innovation potential.

…sixth on the 2016 U.S. Clean Tech Leadership Index by Clean Edge, Inc., where high ranking states are recognized for producing ecofriendly and environmentally safe technology.

…eighth highest startup density (87.2 per 100,000 people in 2013) from the Ewing Marion Kauffman Foundation.

These favorable rankings suggest the state will continue to grow solidly and attract attention as a highly desirable place to live and work.


Note: Annual benchmark revisions to the employment and unemployment data series can significantly alter historic trends. As 2016 job data will be revised in March 2017, the exact revisions are not yet known. The following forecast is based on expected revisions to the data.

COLORADO ECONOMY


Colorado Economy



Colorado employment increased an estimated 2.2 percent in 2016, a decline of 0.9 percentage points from the previous year’s growth rate of 3.1 percent. Estimates show the state gained 56,000 jobs in 2016 compared with 2015, and it is expected to gain another 54,500 jobs during 2017. Data from the U.S. Department of Labor’s Current Employment Statistics (CES) show that statewide employment surpassed its pre‐recession peak in June 2013. Between 2011 and 2016, Colorado added 338,600 jobs to the state’s economy.

According to the preliminary CES numbers, through November 2016, Colorado wage and salary employment growth ranked seventh among the states compared with the same period the prior year. The top states for employment growth included Oregon, Florida, Utah, Idaho, and Washington. However, growth in the top states emerging from the great recession has been disparate. Utah and Colorado both exceeded their pre‐recession peak employment levels on an average annual basis in 2013. Washington did not recover all lost jobs until 2014, and Idaho, Florida, and Oregon did not recover until 2015.

Over the five years from 2010 to 2014, many of the fastest growing states were those with the highest concentrations of fossil fuels employment including Colorado, North Dakota, and Texas. In addition, Alaska ranked among the top 10 in 2010 and 2011 and Oklahoma in 2012. The states with high concentrations of fossil fuels employment have also been the most impacted by the energy price slump. Of the top 10 states for fossil fuels employment concentration in 2016, only Colorado and Texas ranked in the top half of the nation for employment growth through November 2016. Seven of the 10 states ranked in the bottom 10 for employment growth through November. Colorado’s diverse economy with broad‐based growth in many industry supersectors has helped the state remain a top place for business.

Based on the unrevised, published employment numbers from the CES data, year‐to‐date through November, Colorado’s fastest growing supersector was leisure and hospitality, reporting a 5.4 percent increase from 2015 to 2016. Another top supersector was education and health services, which increased by 3.9 percent. These two supersectors were Colorado’s largest growth sectors in absolute employment. Leisure and hospitality added 16,800 jobs year‐to‐date and education and health services added 12,000. The slowest growing supersector in 2016 was transportation, warehousing, and utilities where employment increased just 0.3 percent. Looking ahead, the natural resources and construction, leisure and hospitality, and education and health services

State Concentration Rank

Wyoming 2.7% 1

Oklahoma 2.0% 2

Alaska 0.8% 3

West Virginia 1.2% 4

Texas 1.2% 5

Louisiana 1.1% 6

New Mexico 1.1% 7

North Dakota 1.1% 8

Colorado 0.6% 9

Kentucky 0.5% 10

Highest Fossil Fuels Employment

Concentration, 2016

Source: Metro Denver EDC, Industry Clusters, 2016

COLORADO ECONOMY


Colorado Economy

supersectors are expected to lead the state in employment growth through 2017. The fast pace of growth in natural resources and construction will be primarily due to growth in construction that will outweigh continued job losses in natural resources and mining. All eleven supersectors in Colorado are expected to grow in 2017.

Despite the strong employment growth rate at the state level, employment growth continues to be inconsistent across the state’s regions. The fastest growing regions in 2016 were along the Front Range, and included the two metropolitan statistical areas (MSA) in Metro Denver and the Fort Collins MSA, which is Larimer County. The Greeley MSA, which consists of Weld County, was one of the fastest growing regions in the state; however, the decline in oil and gas employment dampened employment growth overall. The Western Slope continues to struggle with low employment growth since the Great Recession. Employment grew less than one percent in the Grand Junction MSA from 2015 to 2016. Both the Greeley MSA and Grand Junction MSA grew below the national average in 2016.

An additional key facet of Colorado’s employment base is the state’s level of entrepreneurial activity. Sole proprietors are not counted in the nonfarm employment numbers for the state, and these individuals represent a tremendous force in the state. In 2015, Colorado had over 893,400 sole proprietors earning over $29.7 billion in income. Sole proprietor employment increased 2.7 percent between 2014 and 2015, while sole proprietor income increased about 2.2 percent during the same period. Colorado had the fifth‐highest concentration of sole proprietors as a percent of employment of the 50 states.

According to the Manpower Employment Outlook Survey, the employment outlook for Colorado improved compared with the nation from the fourth quarter of 2016 to the first quarter of 2017. Hiring expectations for the state increased to 27 percent in the fourth quarter of 2016 and remained higher than the U.S. in the first quarter at 21 percent. The percent reporting lay‐offs and that were unsure remained about the same between the state and the U.S.

Colorado employers have been optimistic about their business future. As companies consistently increased staffing levels and Colorado’s labor force continued to tighten, the unemployment rate in 2016 of 3.3 percent reached the lowest annual average since 2000 (2.8 percent). Colorado’s unemployment rate remained below the national rate for the 12th consecutive year. Based on year‐to‐date labor force data through November 2016, the state was on pace to have the seventh lowest average annual unemployment rate for 2016.

1Q 4Q 3Q 2Q 1Q

2017 2016 2016 2016 2016

% Hiring 21% 27% 23% 22% 20%

% Laying Off 6% 7% 3% 4% 6%

% No Change 71% 64% 71% 72% 72%

% Unsure 2% 2% 3% 2% 2%

U.S.

% Hiring 19% 22% 23% 22% 20%

% Laying Off 6% 6% 5% 4% 6%

% No Change 73% 69% 71% 72% 72%

% Unsure 2% 3% 1% 2% 2%

Colorado Employment Outlook Survey

Source: Manpower Inc.

Colorado

COLORADO ECONOMY


Colorado Economy

The state’s unemployment situation is expected to remain strong with unemployment expected to average 3.8 percent in 2017. The rate is expected to tick up as employment growth slows and more people enter the labor force. Population and net migration are expected to remain strong and the labor force participation rate may increase, albeit slowly. The labor force participation rate declined significantly during the Great Recession, falling from levels ranging from between about 71 percent to 73 percent to a low of about 66 percent from November 2015 to January 2016. The rate began to climb somewhat

during 2016. The strong state economy may attract previous labor force participants back into the job market, as well as encouraging new entrants.

The states with the lowest unemployment rates through November 2016 were South Dakota (2.7 percent), New Hampshire (2.8 percent), North Dakota (3.1 percent), Nebraska (3.2 percent), and Hawaii (3.2 percent). While employment fell in North Dakota in 2015, the labor force also declined. By November of 2016, the rising number of unemployed declined and employment was growing, ranking the state among those with the lowest unemployment rates. While states such as South Dakota, Nebraska, and Hawaii do not rank among those with the fastest growing rates of wage and salary employment, their stable labor markets and economies contribute to low unemployment rates. The states with the highest unemployment rates in 2016 included Alaska (6.7 percent), New Mexico (6.5 percent), Louisiana (6.3 percent), West Virginia (6.2 percent), and Illinois (6 percent). Alaska, Louisiana, West Virginia, and Illinois were also among the states with the highest unemployment rates prior to the Great Recession.

All measures of unemployment for Colorado were significantly lower than the national rates based on the most recent data from the Bureau of Labor Statistics, including individuals who were underemployed and marginally attached to the labor force, referred to as U‐6 unemployment. This includes discouraged workers, individuals who work part‐time and would prefer a full‐time position, or other individuals who are not employed but who would join the labor force under better circumstances.

Based on the four quarters ending in the third quarter of 2016, Colorado’s U‐6 unemployment rate was 7.4 percent, 8 percentage points below the peak level of 15.4 percent in 2010 and at a level not posted since 2007 (7.3 percent). High underemployment rates during recessionary periods are expected as individuals who were laid off settle for jobs they would not ordinarily take during economic expansions. With Colorado on an economic expansionary path, the U‐6 rate continued to fall through 2016. Colorado’s rate is roughly double the “headline” unemployment rate, which is the typical relationship between unemployment and underemployment rates. Of the 50 states, Colorado had the sixth lowest underemployment rate. South Dakota had the lowest rate at 4.8 percent, while New Mexico (12.5 percent) and Alaska (13 percent) had the highest rates. The national rate was 9.8 percent.

Colorado Exports

Colorado exports declined through 2016. Through the first nine months of 2016, Colorado exports totaled about $5.6 billion, falling 7.6 percent compared with the same period in 2015. Indeed, 2016 is expected to mark the

COLORADO ECONOMY


Colorado Economy

third straight year of decline for Colorado. Colorado exports peaked in 2013 at more than $8.5 billion. Colorado’s largest trading partners remained Canada, Mexico, China, Japan, and Malaysia. Colorado’s top five partners accounted for 50 percent of the value of exports in 2015. The largest absolute decline in exports was from Colorado to Mexico year‐to‐date from 2015 to 2016. The Mexican market had continued to grow for Colorado through 2015 despite declines from the state’s other large trading partners. The strong value of the dollar and exchange rates has made Colorado and U.S. goods and services more expensive for other countries. Combined with a weak global economy, an anti‐globalization sentiment in many countries, global unrest, and slowing investment, there has been lower demand for Colorado goods. Demand will continue to drop through 2017 as monetary tightening provides support to a strong dollar.

Major Colorado exporting industries included computer and electronic products, food manufacturing, chemicals, and machinery. Data indicate that through the third quarter of 2016, the industries with the largest declines in export activity were machinery manufacturing, chemical manufacturing, and transportation equipment. Colorado’s top commodities, which are represented in some of Colorado’s top exporting industries, included electronic integrated circuits; beef; medical, surgical, dental, and veterinary instruments and appliances; and civilian aircraft, engines, and parts. Based on the most recent commodity data for the state, from 2014 to 2015, the decline in exports was attributable in large part to a decline in beef and civilian aircraft, engines, and parts.

Population

Population: 5.56 million in 2016(e) (+1.8 percent); 5.66 million in 2017(f) (+1.8 percent).

According to data from the Colorado State Demography Office, the state’s population growth rate averaged 1.6 percent per year between 2006 and 2016. The population growth rate was estimated to be 1.8 percent in 2016 and is expected to maintain that level of growth in 2017. Looking further in the future, total population is expected to increase an average of 1.6 percent per year through 2025. Demographers expect net migration—or the inflow of residents minus the outflow—will be the major contributing factor to Colorado’s population growth throughout the decade, representing about 68 percent of the state’s population increase in 2016.

Colorado is experiencing two major demographic shifts in the state’s population. First, in 2015, the largest generational group residing in the state became the millennials (born 1981‐1997), surpassing the baby boomers (born 1946‐1964). Second, Colorado’s share of the population 65 years and older is increasing rapidly. Among the 50 states, Colorado ranked as having the fifth lowest share of those 65+ (13 percent) in 2015. The State Demography Office projects that by 2030, this percentage will increase to more than 18 percent of the population, rising from about 714,000 to about 1.3 million people.

Income and Spending

Total Personal Income: +3.6 percent in 2016(e); +5.0 percent in 2017(f).

Retail Trade Sales: +3.8 percent in 2016(e); +4.6 percent in 2017(f).

COLORADO ECONOMY


Colorado Economy

Total personal income growth in Colorado slowed during 2016 compared with 2014 and 2015. Expected growth in 2016 was 3.6 percent, down from 5.1 percent in 2015. The slowdown coincided with the slower pace of hiring activity, continued losses in the high‐income oil and gas industry, and the slower rise in housing prices, equities, and other sources of investment income. However, personal income growth has been faster in Colorado than the nation. Between 2010 and 2015, personal income in Colorado increased at an annualized rate of 5.4 percent, while national personal income increased 4.2 percent. In 2016, personal income is expected to increase 3.6 percent for the state, matching the 3.6 percent growth rate nationwide.

Looking ahead, the pace of personal income growth is expected to accelerate back to 2015 levels in 2017, increasing 5.0 percent. Growth in real wages, investment income, and government transfers from a larger retirement age population will contribute to faster growth.

Per capita personal income in Colorado was the 13th highest of the 50 states in 2015. Colorado has ranked in the top 15 states since 2013. The states with the highest per capita personal income included Connecticut ($68,700), Massachusetts ($62,600), New Jersey ($59,950), New York ($58,670), and Alaska ($56,150). While Colorado’s per capita personal income increased just 2.3 percent between 2014 and 2015 to $50,900 (43rd among the states), Colorado has also had one of the fastest growing populations. The states with the highest levels of per capita personal income also all ranked among the bottom half of the nation for population growth, with the exception of Massachusetts. The states with the lowest levels of per capita personal income were located in the south for the most part and included Mississippi ($34,770), West Virginia ($36,760), New Mexico ($37,940), Alabama ($38,030), and Arkansas ($56,150).

Retail trade sales in Colorado increased in 2016 as unemployment declined and consumer confidence remained strong, growing an estimated 3.8 percent. As of December 2016, consumer confidence in the Mountain Region was 4 percent higher than December 2015. Coupled with personal income growth, retail trade sales will rise in 2017 as the state economy continues to expand. In 2017, retail trade sales will grow a forecasted 4.6 percent.

Inflation

Denver‐Boulder‐Greeley CPI: +2.8 percent in 2016; +3.0 percent in 2017(f).

Changes in the Denver‐Boulder‐Greeley Consumer Price Index (CPI), which are generally used to measure inflation or deflation, have often magnified changes in the national CPI. However, local inflation trends during

COLORADO ECONOMY


Colorado Economy

and after the recent recession followed a slightly different course. The decline and subsequent increase in the Denver‐Boulder‐Greeley CPI in 2009 and 2010 differed from national averages by a few tenths of a percentage point.

The Denver‐Boulder‐Greeley area reported prices that increased at a faster pace than the U.S. between 2013 and 2016, which is a trend that is expected to continue in 2017. The pace of inflation in the Denver‐Boulder‐Greeley area accelerated in 2016 to 2.8 percent compared with 2015. Inflation in 2017 is expected to increase to 3.0 percent as energy prices rebound and medical care moderates. Home prices will continue to rise, contributing to higher local inflation. Challenges in agriculture will continue to dampen food and beverage prices, while prices for many consumer goods and core inflation will register close to 2 percent.

Compared with the nation, a few price trends have noticeably led to higher inflation in the Denver‐Boulder‐Greeley area. Housing and medical care have increased at a much faster rate since 2010 than nationally, while many other prices have appreciated at or below national growth. From 2010 to 2015, the housing index in the Denver‐Boulder‐Greeley area increased at an annual rate of 3.5 percent compared with 1.9 percent nationally. For medical care, the price index increased at an annual rate of 3.4 percent compared with 2.8 percent nationally. At the same time, price appreciation in apparel, education and communication, food and beverages, and transportation increased at similar rates as the nation. The faster rate of growth in the Denver‐Boulder‐Greeley area was also attributable to prices for recreation that grew at a 2 percent rate each year since 2010 compared with 0.5 percent nationally.

Colorado Economy Summary

Colorado will likely be among the top 10 states for employment growth during 2016 and will post a 2.2 percent increase in employment in 2016. The employment base is expected to increase by 2.1 percent in 2017 and reach 2.65 million workers, representing the addition of 54,500 jobs. The natural resources and construction, leisure and hospitality, and education and health services supersectors are expected to lead the state in employment growth through 2017.

Personal income growth slowed in 2016 but will increase to 5 percent in 2017 due to increasing wages, rising housing prices, higher transfer payments, and increased investment. Low unemployment and rising personal income bode well for consumer spending in 2017. Retail trade sales increased by about 3.8 percent in 2016, reflecting a pullback in the first half of the year and a slower rate than 2015. However, retail trade sales are expected to increase at a faster pace of 4.6 percent in 2017. Colorado’s expanding employment base, quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state.

METRO DENVER ECONOMY



The seven‐county Metro Denver region consists of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties. There are two metropolitan statistical areas (MSAs) located wholly or partly within the Metro Denver region: the Boulder MSA (Boulder County) and the Denver‐Aurora‐Lakewood MSA.1

Metro Denver reported strong economic trends in 2016 and similar trends are expected to continue through 2017. Compared with the national average, employment growth in Metro Denver was 1.2 percentage points higher at 2.9 percent and included gains across all supersectors. The expanding Metro Denver economy is bolstered by a vibrant entrepreneurial community, an active start‐up market, and optimistic businesses. Metro Denver received several accolades in 2016, including:

Forbes ranked Denver as the nation’s best place for business and careers for the second year in a row.

U.S. News and World Report named Denver the best place to live in the country based on a healthy job market, cost of living, and perception as a desirable place to live.

WalletHub ranked the Denver MSA as the second‐best city in the country to start a career.

Outside Magazine ranked Denver the third best place to live in the country.

Yahoo! Finance ranked Denver among the five‐best cities to start a career after college graduation.

The Brookings Institute found the Denver MSA had the sixth‐highest employment rate for young adults between the ages of 20 and 24.

BankRate.com ranked the Denver MSA as the eighth‐best region for building wealth.

MoneyRates.com ranked the Denver MSA as the ninth best city for young entrepreneurs.

The Ewing Marion Kauffman Foundation ranked the Denver MSA 13th out of 40 metropolitan areas for entrepreneurship growth, up one position from last year.

NerdWallet ranked the Denver MSA as the 15th‐best city in the nation for science, technology, engineering, and mathematics (STEM) graduates.

Metro Denver will experience strong employment growth in the natural resources and construction, financial activities, education and health services, and the leisure and hospitality supersectors in 2017. Strong construction activity and home prices will characterize the residential real estate market. Low inventory will continue to challenge the market and slightly slower demand and higher interest rates will moderate price appreciation. With all indicators considered, Metro Denver’s employment growth will slow to a rate closer to the national average as the labor market tightens and net migration tapers.

Population

Population: 3.13 million in 2016(e) (+1.9 percent); 3.19 million in 2017(f) (+1.8 percent).

The seven‐county Metro Denver area is home to over 3.1 million people. Metro Denver’s population growth averaged 1.8 percent per year between 2006 and 2016, maintaining a stable growth rate through most of the recent recession and recovery due to strong positive net migration. Forecasters with the Colorado State Demography Office expect the region’s population growth rate will decrease slightly to 1.8 percent in 2017, which would be significantly faster than the projected U.S. growth rate of 0.8 percent in 2017. Based on forecasts, 2017 will mark the first year since 2010 that the population in Metro Denver will not increase at a

1 The Denver‐Aurora‐Lakewood MSA includes Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park Counties.




faster pace than the state. The state demographer expects population growth between 2016 and 2017 will be fastest in the City and County of Broomfield (+3.6 percent), Adams County (+2.4 percent), Arapahoe County (+2 percent), and Douglas County (+1.9 percent). Jefferson County will have the slowest rate of growth at 1.1 percent. Population growth in the region is expected to average 1.5 percent growth per year through 2025.

Population growth depends on two components—natural increase and net migration. Natural increase is the difference between births and deaths, and it tends to change only gradually as the population ages. Net migration reflects the number of people moving into the area minus the number leaving, which tends to be more volatile as economic cycles, housing costs, and other less‐predictable factors influence population mobility. Natural increase accounted for approximately 42 percent of population growth between 2006 and 2016. Net migration in Metro Denver accounted for 64 percent of total Colorado net migration between 2010 and 2016, an above average trend that is not expected to remain into the future. Demographic forecasts anticipate that the Metro Denver area will account for 57 percent of the state’s net migration in 2016 and 54 percent in 2017.

The age composition of Metro Denver’s population will continue to shift significantly over the next 15 years. The population 65 years and over in Metro Denver was 8.8 percent in 2000 and grew to an estimated 12.3 percent in 2016. In absolute terms, the population 65 years and over was about 214,200 in 2000 and increased to nearly 386,700 in 2016, an 80 percent increase. By 2030, the 65 years and over population is projected to increase by another 287,100 people to 673,800 and




comprise an estimated 17.7 percent of the population. The older population has notable implications for the Metro Denver economy.

As the baby boomer generation has begun to enter traditional retirement age, it has coincided with higher labor force participation rates for the 65 years and over demographic, as well as increased earnings. Other economic factors related to the aging of the population include healthcare spending, housing preferences, and demand for goods and services. This generational shift will have large impacts on the business community. As baby boomers retire, business leaders will need to find ways to either retain some of these workers or fill their positions. Advance planning now can make for smoother transitions in the future. In the population by generation charts, it should be noted that the official name and birth year ranges for the “next gen” and “future gen” generational groups have not been established.

Another key demographic component for the Metro Denver region is the millennial generation. Millennials are the largest population group in Metro Denver, numbering about 754,800 in 2016 and comprising more than 24 percent of the population. While millennials represent the largest share of the potential working age population age 16 to 64 years, the gen X population is the largest component of today’s labor force. Metro Denver is an attractive location for this demographic and consistently ranks as a top area for college graduates and the millennial generation.

Income

Median household income in Metro Denver has grown significantly faster than the U.S. emerging from the last recession, especially in the past few years. Data indicate that from 2010 to 2015, the median household income in Metro Denver grew at a rate of about 3.7 percent each year compared with 2.2 percent for the U.S. In 2015, median household income in Metro Denver was $70,280 and was $55,780 in the U.S. The trend is also apparent in personal income data from the U.S. Bureau of Economic Analysis. Based on BEA data, Metro Denver’s personal income grew about 7.4 percent each year from 2010 to 2015 compared with 4.4 percent in the U.S. Wages and salaries in Metro Denver are also higher. Data from the U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages (QCEW) shows the average annual wage for Metro Denver in 2015 was about 14 percent higher than in the U.S., $60,260 compared with $52,940.

The composition of personal income is shifting in the Metro Denver region. Transfer receipts have comprised a larger share of personal income in the past five years than before the great recession. From 2002 to 2007, transfers ranged from 8 percent to 8.5 percent of personal income. From 2010 to 2015, transfers ranged from 11.1 percent to 13.1 percent of income. In 2015, personal income was comprised of earnings of employees and proprietors, less contributions for government social insurance (70.7 percent); dividends, interest, and rent income (18.7 percent), and transfer receipts (11.3 percent).

Earnings vary by age group. Workers age 45 to 64 years had the highest median weekly earnings in 2015 based on data from the U.S. Bureau of Labor Statistics. This demographic was followed by workers age 35 to 44 years. The lowest earning workers were age 25 to 34 years. The rank of earnings for each age group has shifted in the past 15 years. In 2000, the highest earners were age 45 to 54




years and the lowest were workers 65 years and over. However, older workers are earning more in the past 5 to 10 years. Since 2007, workers age 55 to 64 years generally had the highest median earnings and since 2000, the median earnings of workers age 65 years and over has increased the fastest, at an annual rate of 4.3 percent. Earnings of workers age 65 years and over were about 97 percent of workers age 35 to 44 years in 2015. The slowest increase was for workers age 25 to 34 years whose median earnings increased about 2 percent each year.

Special Analysis: Consumer Spending Patterns

Current dollar U.S. GDP totaled $18 trillion in 2015, with personal consumption expenditures, or consumer activity, representing 68 percent of the total. While consumption has historically represented the largest component of GDP, its importance has been increasing over time, from an average of 62.5 percent throughout the 1980s to an average of 68.3 percent so far in the 2010 decade. Indeed, consumption reached 68.9 percent of total GDP in the second quarter of 2016, barely below the record‐high level of 69.1 percent in the first quarter of 2011.

The importance of consumer spending raises the question of whether or not consumers can continue to spend at this pace. Data suggests that higher wages earned by a greater number of workers, rising household wealth, and increasing household debt levels are providing the funding for continued consumer spending. In addition, demographic shifts will be responsible for changes in consumer spending over the next few years.

Part of the reason for increased consumer activity is that 2.7 million jobs were added each year from 2014 to 2016 at the national level, and the typical worker received a 3.1 percent increase in the average annual wage in 2014 and 2015. In Metro Denver, an average of 50,900 jobs were added each year from 2014 to 2016, and wages increased an average of 2.1 percent per year in 2014 and 2015. More workers earning more money means greater spending power, as does the wealth effect resulting from rising stock values and home appreciation. While stock market gains were minimal in the first part of 2016, activity picked up in the later months of the year, propelling the Dow Jones Industrial Average to close in December 2016 at 13.4 percent higher than the December 2015 level. Median home prices also increased at a strong rate, rising an estimated 8.3 percent in Metro Denver and 4.6 percent nationally in 2016.

Rising incomes have also meant a slow but steady increase in the savings rate. The average savings rate over the past 57 years (1959 ‐ 2015) was 8.4 percent. More recently, the rate had averaged 5 percent over the past 20 years (1996 ‐ 2015). The rate averaged 5.8 percent in 2015 and was tracking at that same level in 2016.

On the downside, a portion of the increased consumer spending has been funded through rising debt levels. Aggregate household debt balances rose to $12.3 trillion in the second quarter of 2016, a 3.7 percent increase compared with the same period one year ago. Still, total household debt remains below the $12.68 trillion peak reached during the third quarter of 2008.

Mortgages and home equity loans represent about 72 percent of household debt. Student loans represent about 10 percent of total debt, with the share of this component rising over time. The remaining 18 percent of household debt is tied more directly to consumer spending, and consists of auto loans, credit card balances, and retail loans (credit and loans from clothing, grocery, home furnishings, and department stores, etc.). These categories increased rapidly during the second quarter of 2016, posting over‐the‐year increases of 9.7 percent, 3.7 percent, and 4.9 percent, respectively.




The influence on consumer spending depends not only on the total additional income available for spending, but also on who is receiving the additional income and how they are likely to spend their dollars. The following analysis considers spending by major category for three age groups: (1) under 35 years (which roughly equates to the millennials); (2) 35 to 54 years (which roughly equates to the generation X); and (3) 55 years and older (the majority of which are baby boomers).

The three largest categories of consumer spending are housing, transportation, and food. While the millennials ($29,800) and the baby boomers ($30,300) are likely to spend similar amounts on these three categories, this amount represents 70 percent of millennial total spending ($44,500) compared with 62 percent of baby boomer total spending ($49,300). Gen Xers, on the other hand, spend more dollars on these three categories ($40,000), which represents 62 percent of their total spending ($64,100).

Consumer Spending by Category by Age

Source: U.S. Bureau of Labor Statistics, 2014 Consumer Expenditure Survey.

The highest numbers of millennials by single year of age were 29 to 35 years old in 2016. This means that a large number of the millennials will be entering the 35 to 54 years category over the next six years, and beginning to reach their income potential. While recognizing that income and expenditure shifts are not instantaneous as an individual moves from one age cohort to the next, the number of millennials entering the high‐income, high‐spending 35 to 54 year age cohort is greater than the number of current Gen Xers moving into the 55 years and older category. This represents a potential boost in spending power in Metro Denver.

Q2 2016 Q2 2015 % Change

Mortgage $8.4 $8.1 3.0%

Home Equity $0.5 $0.5 ‐4.2%

Student Loans $1.3 $1.2 5.8%

Auto Loans $1.1 $1.0 9.7%

Credit Cards $0.7 $0.7 3.7%

Other $0.4 $0.3 4.9%

Total $12.3 $11.9 3.7%

Total Household Debt Balance and Its

Composition ($Trillions)

Source: Federal Reserve Bank of New York, "Quarterly Report on

Household Debt and Credit," August 2016.




Further, while millennials delayed home ownership longer than other generations, they are increasingly entering the market. Many analysts predict millennial home‐buying activity to increase in the next few years. The National Association of Realtors (NAR) found that the Denver MSA had one of the highest percentages of millennials that planned to buy a house, an estimated 81 percent. Further, the NAR recently reported that millennials are also more willing than previous generations to complete do‐it‐yourself projects and repairs. This should boost retail sectors associated with new homes such as building and nursery stores and furniture and home furnishings.

Healthcare is the fourth largest spending category for those 55 years and older. The older consumer is likely to $5,500 per year on healthcare needs, compared with $2,200 by today’s millennials and $4,300 by Gen Xers. The aging of the population in Metro Denver means that more dollars are likely to be spent in the healthcare sector in the coming years.

The fourth largest spending category for the two younger age cohorts is personal insurance and pensions. Consumers in the 35 to 54 year age cohort are likely to spend $8,000 per year on this category, as higher earnings generally mean more dollars invested for retirement. Consumers under 35 years spend an average of $4,500 per year.

The remaining spending categories of entertainment, apparel and services, education and reading materials, and all other categories reflect much of a consumer’s discretionary spending. While spending in these categories represents roughly 18 percent of total spending for each of the age cohorts, the dollar volume differs significantly. Millennials are likely to spend about $8,000 per year on these categories, compared with $9,100 by those age 55 and older and $11,900 by those between the ages of 35 and 54 years.

There are likely impacts from an increase in people delaying retirement as well as higher earnings for the 65 years and over working population. Several categories of spending are considered work‐related expenditures including clothing and transportation. While average spending in these categories generally falls with the age of the reference person, longer participation in the labor force may boost this spending in these categories over previous generations.

Demographic shifts are shaping the retail landscape. Changes in spending patterns as the population ages will influence the types of goods and services demanded now and in the future throughout Metro Denver. Understanding expected changes in spending patterns is also important because of the repercussions for state and local sales tax collections.

Residential Real Estate

Home sales: 55,634 in 2016 (‐0.8 percent); 53,965 in 2017(f) (‐3.0 percent).

The largest purchase that most consumers ever make is a home. Metro Denver home sales remained near record highs, but decreased in 2016, falling 0.8 percent over 2015 home sales. 2015 marked the highest number of homes sold since record keeping began in 1985, an estimated 56,062 homes.

Net migration activity in Metro Denver remained strong but also declined from 2015 levels. Demand remained strong in 2016, but




low inventory and affordability limited the growth in sales. Housing inventory fell to record low levels. In February 2016, the Denver Metro Association of Realtors (DMAR) recorded 3,963 active listings, the lowest number of any month since they started tracking housing data. There were 4,265 active listings in December 2016, about 68.9 percent less than the historical December average of 13,708.

While current inventories are constrained, there were over 23,355 residential construction permits issued in Metro Denver in 2016, up 21 percent from 2015. The Metro Denver residential market will welcome many new units through 2017 and this should alleviate some of the pent up demand for housing and ease some price pressure.

Home Prices

Home prices in Metro Denver rose each year from 2012 through 2015 as demand was strong and housing inventory fell to record lows. The median home price continued to rise through 2016 as low inventory and strong in‐migration continued to drive up prices. The Metro Denver median annual home price will appreciate 8.3 percent in 2016 to $383,000, compared with the national increase of 4.6 percent to $234,200.

According to the S&P Case‐Shiller index, as of October 2016, home prices in Denver increased year‐over‐year for 58 consecutive months or since January 2012. Denver recorded the third largest over‐the‐year increase of the 20 cities tracked by the index. Analysts for the index reported that a shortage of housing inventory, healthy economic activity, and tighter lending standards since the recession continue to support higher home prices.

Overall, slower net migration activity, price conscious consumers, and higher interest rates should temper home price growth in 2017. Home price growth is expected to slow to 5.5 percent, reaching a median price of $404,100 in Metro Denver. U.S. prices are expected to increase at a slightly slower pace of 5.3 percent, with the median home price rising to $246,600.

Foreclosures

Foreclosures in Metro Denver were down 34.3 percent in 2015 compared with 2014 and declined an additional 8.8 percent in 2016. Foreclosures peaked at 26,434 in 2009, but fell to 3,190 in 2016. According to experts, tight underwriting standards paired with improved economic and housing market fundamentals brought down new mortgage delinquencies nationwide. Analysts at CoreLogic stated that in November 2016, Colorado had the lowest delinquency rate of the states where a strong job market and




home‐price growth enabled more homeowners to stay current. Experts cited by Realtytrac noted foreclosure activity in Colorado is more heavily tied to loans originated since 2009, after most of the risky lending fueling the last housing boom had stopped. Foreclosures are expected to increase 1 percent in 2017 after six consecutive years of declines, while remaining at a historically low rate.


Note: Annual benchmark revisions to the employment and unemployment data series can significantly alter historic trends. As 2016 job data will be revised in March 2017, the exact revisions are not yet known. The following forecast is based on expected revisions to the data.

Employment: 1.62 million in 2016(e) (+2.9 percent); 1.66 million in 2017(f) (+2.4 percent).


Over 62 percent of employment in Colorado is located in Metro Denver, resulting in the region having a large influence on statewide job levels. Employment in the City and County of Denver accounts for nearly one‐fifth of all Colorado employment (19.1 percent). The City and County of Denver also accounts for just under one‐third of the employment in the Metro Denver region (31.1 percent). Over one‐fifth of the region’s employment base is in Arapahoe County (20.6 percent) and 15 percent is located in Jefferson County. The employment in the remaining four counties represents one‐third of the Metro Denver total (33.3 percent).

The pace of Metro Denver job gains slowed during 2016, finishing out the year with the addition of 45,400 jobs. Employment rose 2.9 percent from 2015 to 2016 and is expected to increase 2.4 percent between 2016 and 2017.

Results of the most recent Manpower Employment Outlook Survey for the Denver‐Aurora‐Lakewood MSA show a strong employment outlook for the first quarter of 2017. Hiring prospects rose 2 percentage points in the first quarter of 2017 compared with the prior year. The percent of companies planning to hire has topped 25 percent for the past three quarters. Through 2016, Metro Denver reported stronger hiring prospects compared with the national average, signaling that Metro Denver companies have a more positive outlook in the local business environment than the national average. The gap widened in the fourth quarter of 2016 to 6 percentage points and continued in the first quarter 2017 outlook.

1Q 4Q 3Q 2Q 1Q

2017 2016 2016 2016 2016

% Hiring 25% 28% 25% 23% 23%% Laying Off 8% 6% 3% 1% 4%% No Change 64% 65% 69% 74% 70%% Unsure 3% 1% 3% 2% 3%

U.S.

% Hiring 19% 22% 23% 22% 20%% Laying Off 6% 6% 5% 4% 6%% No Change 73% 69% 71% 72% 72%% Unsure 2% 3% 1% 2% 2%

Metro Denver Employment Outlook SurveyDenver‐Aurora‐

Lakewood MSA

Source: Manpower Inc.




Job growth in 2016 pushed down the unemployment rate in Metro Denver to 2.6 percent in November, the lowest rate since December 2000 (2.3 percent). The unemployment rate averaged 3.1 percent for the year, the lowest annual average since 2000 (2.6 percent). As the area continues to attract new companies, draw in talented workers, and promote entrepreneurship, Metro Denver will experience steady job growth and a lower unemployment rate than the U.S. and Colorado. Labor conditions are expected to remain tight in 2017, leading to wage growth. The improved job market may entice people to reenter the labor force while companies work to match worker skill sets to job openings. The unemployment rate is expected to average a higher 3.6 percent in 2017.

Industry Overviews

Industry employment data is grouped according to North American Industry Classification System (NAICS) codes. This coding structure includes 20 detailed industry sectors that are combined to form 11 “supersectors.” This section describes business activity in Metro Denver according to these supersectors.

Metro Denver’s largest industry supersectors are professional and business services, wholesale and retail trade, and government. The three supersectors that added the most jobs in 2016 were professional and business services (+9,400 jobs), leisure and hospitality (+8,700), and education and health services (+6,800 jobs). All of the 11 supersectors recorded employment growth between 2015 and 2016. The natural resources and construction supersector, leisure and hospitality, and education and health services supersectors reported the fastest over‐the‐year employment growth.

Natural Resources & Construction


Natural Resources & Mining: Metro Denver’s urban geography makes for a relatively small concentration of natural resources employment, just 1 percent of total industry employment. The region is home to corporate, regional, and satellite offices for several energy and mining companies. The majority of Metro Denver’s natural resources employment is concentrated in oil and gas extraction companies and support industries.




The 55 percent decline in the average spot price for Colorado crude oil from 2014 to the year‐to‐date average in 2016 has negatively affected production and employment in the industry despite improved drilling technologies and productivity growth. After increasing more than 32 percent in 2015, production in Colorado fell 8.6 percent year‐to‐date through October 2016 from about 346,000 barrels per day to 318,000 barrels per day. 2016 marked the state’s first decline in production since 2001. The average number of rigs in Colorado fell by nearly half from 2015 to 2016, from 38 rigs to an annual average of 19, and the average number of active wells in the state increased just 0.3 percent.

Metro Denver’s natural resources employment began to decline in 2015, with average employment falling 2.5 percent from 2014. Average employment year‐to‐date through the second quarter of 2016 was down more than 15 percent from the same period in 2015. The CU Leeds School of Business, 2017 Business Economic Outlook estimated that at a state level, oil and gas employment alone fell by more than 25 percent in 2016.

The price of U.S. oil is forecasted to increase in 2017, averaging about $50 per barrel according to the most recent EIA projections. Colorado prices will follow the national trend. Higher prices will support much of the existing employment in the industry, but Colorado’s production is still expected to decline in 2017. Analysts note that with a slower rate of new wells being drilled, production from those wells in 2017 will likely not offset decreases at existing wells due to the rapid decline rate of lateral wellbores. Employment in Metro Denver’s oil and gas companies is expected to contract slightly. Combined with challenging agricultural conditions, natural resources employment is forecast to fall in 2017.

Construction (Residential): In 2016, new home construction in Metro Denver approached levels not posted since the early 2000s. In 2016, there were an estimated 23,355 new residential units in the area, increasing 21.2 percent from 2015 and the highest level since 2001 (27,794). In 2017, new residential units are forecasted to fall slightly to 22,859 units, a decrease of 2.1 percent.

Homebuilders are responding to strong population growth, low vacancy, strong rental rates, and some of the fastest growing home prices of the nation’s major metro areas. According to the S&P/Case‐Shiller home price index, Denver’s home prices in October 2016 were 8.3 percent higher than the prior year’s level, recording the third largest over‐the‐year increase of the 20 cities tracked by the index. The median home price




in the Denver‐Aurora‐Lakewood MSA rose 9.6 percent between the third quarters of 2015 and 2016, while the Boulder MSA recorded a 14.7 percent increase during the same period.

Many factors contributed to the strong demand in the residential housing market including an improved economy, growing employment, more confident consumers, in‐migration, and low mortgage interest rates. Net migration represented about two‐thirds of total population growth in Metro Denver in 2016, with total net migration reaching about 38,900 people. Metro Denver is expected to add an additional 130,000 people to its population between 2017 and 2020 through net migration alone. Mortgage rates remained near historically low levels in 2016, averaging 3.5 percent, up about 0.2 percentage points from the 2015 rate. The Denver‐Aurora‐Lakewood MSA was among the metro areas where listings spent the shortest amount of time on the market.

Single‐family detached units were estimated to comprise about 46 percent of total new units in 2016 and 53 percent in 2017. The number of single‐family detached units permitted was up 9.7 percent between 2015 and 2016, and is expected to increase by another 12 percent in 2017. Single‐family attached units comprised just under 2 percent of the new units in 2016. The number of new single‐family attached units increased 3.3 percent in 2016 and are forecast to increase 10 percent in 2017.

Strong rental rates and low vacancy have supported investment in multi‐family construction. Average rent in the metro area was $1,346 in the fourth quarter of 2016, an increase of 4 percent over‐the‐year and marking the 27th consecutive quarter of over‐the‐year growth. Metro Denver recorded a vacancy rate of 6.2 percent. Since 2010, the vacancy rate dipped as low as 3.9 percent in the third quarter of 2014. Multi‐family construction represented more than 52 percent of the new units built in 2016, significantly higher than the 35 plus‐year average of multi‐family units representing roughly one‐quarter of construction. The pace of multi‐family construction is projected to slow in 2017, decreasing about 15 percent and comprising about 45 percent of the

new units.

Construction (Commercial): All four commercial property types recorded strong fundamentals in 2016, reporting low vacancy rates and rising average lease rates. Construction completed in the office and flex markets declined over the past year, but increased for industrial and retail.

In 2016, vacancy for office space fell to lows not posted since 2001. In the fourth quarter of 2016, the vacancy rate fell 0.3 percentage points over‐the‐year to 9.3 percent. The vacancy rate throughout the year was under 9.4 percent, the lowest since the third quarter of 2001 when the rate was 8.6 percent. In the fourth quarter, the average lease rate rose 2.9 percent over‐the‐year to $25.36 per square foot. Newly completed office construction in Metro Denver declined in 2016 with 1.36 million square feet

4Q 2016 4Q2015OfficeVacancy Rate 9.3% 9.6%Average Lease Rate $25.36 $24.65New Construction (YTD, millions sq.ft.) 1.36 2.08IndustrialVacancy Rate 3.8% 3.1%Average Lease Rate $7.41 $7.03New Construction (YTD, millions sq.ft.) 4.51 1.37FlexVacancy Rate 7.6% 7.0%Average Lease Rate $11.42 $10.55New Construction (YTD, millions sq.ft.) 0.24 0.50RetailVacancy Rate 4.5% 5.0%Average Lease Rate $16.55 $16.00New Construction (YTD, millions sq.ft.) 1.32 1.16

Metro Denver Commercial Real Estate Fundamentals

Note: Vacancy and lease rates are for direct space only. All lease rates are per square foot; office lease rate is full service and all other lease rates are triple-net.

Source: CoStar Realty Information, Inc.




added, down from 2.08 million in 2015. However, new construction activity remained well above the level of completions from 2010 to 2014. There was about 5.9 million square feet of office space under construction during the fourth quarter of 2016, nearly double the 3.18 million square feet posted a year ago. Of this space, nearly 3.8 million square feet of space was under construction in the City and County of Denver. Some of the largest office buildings completed through 2016 included the 311,015‐square‐foot 1401 Lawrence office building in downtown Denver, the 175,755‐square‐foot Pearl West office building in Boulder, and the 127,000‐square‐foot FirstBank office building in Jefferson County.

The vacancy rate in the industrial market remained near historic lows during 2016, but posted a fourth quarter rate that was 1.1 percentage points higher than the historic low of 2.7 percent posted in the third quarter of 2015. The strong demand for space pushed up the average lease rate to $7.41 per square foot in the fourth quarter, which was 5.4 percent higher than one year ago. However, the average lease rate actually moderated somewhat over the year and was down slightly from the second quarter ($7.48). Newly completed industrial construction increased to 4.51 million square feet in 2016, more than triple the 1.37 million square feet completed in 2015. As of fourth quarter 2016, 2.33 million square feet were under construction. Construction in the industrial market was characterized by not only build‐to‐suit projects, but also a number of speculative developments. Notable projects included the 110,215‐square‐foot 150 Capital Drive building in Golden, a 101,000‐square‐foot building at the Highfield Business Park in Douglas County, and a 357,560‐square‐foot warehouse distribution building in Aurora.

As 2016 closed, consumer confidence in the Mountain Region, which includes Colorado, rose after a slight dip during the first half of the year, once again reaching levels not posted since before the Great Recession. Consumers in the region were more optimistic than the national average. Retail sales continued to improve at a moderate pace in response to increased consumer demand in 2016. The fourth quarter retail vacancy rate fell 0.5 percentage points to 4.5 percent compared with last year at this time. The fourth quarter vacancy rate was the lowest level since at least 2006. The average lease rate was up 3.4 percent over‐the‐year to $16.55 per square foot. According to analysts, development in the Metro Denver retail market will be strongly tied to the growth of the area’s housing market; as residential supply increases in suburban markets, retailers will be drawn to the strengthening ancillary submarkets. About 1.32 million square feet of new space was completed in 2016. An additional 1.19 million square feet of retail space was under construction at the end of 2016.

Construction (Infrastructure, Public/Nonprofit): Healthcare and infrastructure construction in Metro Denver continued at a brisk pace in 2016. About 1.2 million square feet of healthcare space including hospital campuses and senior living facilities was completed in 2016. Another 2.4 million square feet was under construction as of the fourth quarter of 2016. Upcoming projects included the Morningstar at Ridgegate senior living facility, Shalom Park West senior living, and the ongoing construction of the Veteran’s Affairs hospital in Aurora.

Major transportation projects in 2016 included the widening of C‐470, I‐225, and improvements to I‐25. In addition, the Regional Transportation District (RTD) will be completing more FasTracks projects in 2017. The district plans to open the G Line from Wheat Ridge to Denver and the R Line from Aurora to Lone Tree. The G Line will span 11 miles and eight stations between Union Station and Wheat Ridge near I‐70 and Ward Road. The R Line will add 10.5 miles of new light rail connecting the existing track at Nine Mile Station to the Peoria Station on the University of Colorado A Line. Construction will also continue on the North Metro Rail Line, expected to open in 2018, and the Southeast Rail Line extension to be completed in 2019.

School spending is also expected to boost the sector with voters approving several tax packages including a $572 million measure for Denver Public Schools (DPS), $350 million for the Adams 12 School District, and $250 million for the Cherry Creek School District. In Colorado, voters approved $4.2 billion in bond issues, a record‐setting




sum for the state. Overall, the construction sector will continue to expand as new residential and nonresidential projects are brought into the pipeline, including levels of residential and office construction not posted since the early 2000s and continued activity in the other commercial sectors. Healthcare, public infrastructure, and school spending will remain strong. Employment levels are expected to increase through 2017, but access to skilled labor will be difficult for construction companies. However, the skills needed in the oil and gas industry are often transferable to construction. Therefore, there may be opportunity to pick up workers as the oil and gas industry continues to rework itself.

Manufacturing


The manufacturing sector includes producers of nondurable goods—such as food and beverages, pharmaceuticals, and apparel—and durable goods including machinery, computers and electronics, and furniture. Metro Denver’s manufacturing sector expanded by about 1,300 workers in 2016.

The seven‐county Metro Denver region represents about 60 percent of Colorado’s manufacturing employment. Metro Denver’s largest subsectors in terms of employment are computer and electronic products, food manufacturing, fabricated metal products, and transportation equipment.

Employment in several manufacturing subsectors in the Metro Denver region expanded in 2016, led by nondurable goods producers. Based on data from the Quarterly Census of Employment and Wages (QCEW), the largest gains in Metro Denver’s employment through the first half of 2016 were in food manufacturing, beverages, and plastics and rubber products. These subsectors are expected to continue to record employment growth through 2017. Other nondurable goods sectors that are expected to grow in 2017 are chemical manufacturing and textile products. The largest decline in employment in nondurable goods was paper manufacturing. The industry has had challenges related to shifts in print media and the increase in digital communication.

The best performing durable goods subsectors in 2016 included transportation equipment, furniture and related products, and miscellaneous manufacturing. Miscellaneous manufacturing, a diverse industry grouping that includes medical device manufacturers among others, has been one of the strongest growing subsectors over the past year. Based on QCEW data, the subsector increased 5.7 percent year‐to‐date through the second quarter of 2016 compared with the same period in 2015.

The performance of aerospace companies has a large influence on transportation equipment manufacturing activity in Metro Denver. Aerospace companies are also represented in the region’s computer and electronic products, fabricated metals, and machinery manufacturing subsectors. Aerospace employment contracted nationally over the past five years, but Metro Denver recorded an increase in employment. Concurrently, transportation equipment manufacturing employment rebounded in the past two years after years of declines. From 2014 to 2015, transportation equipment manufacturing employment jumped nearly 7 percent. Through the first two quarters of 2016, average employment year‐to‐date was up another 4.5 percent compared with the same quarters in 2015. Metro Denver’s subsector grew much faster than the 1.6 percent rate posted nationally.

Despite ongoing challenges in fabricated metals and primary metals over the past year, robust construction activity will help support employment in these subsectors, as well as nonmetallic minerals, wood products, and furniture manufacturing. Fabricated metals, one of the largest manufacturing subsectors in Colorado, was hurt by the contraction in oil and gas activity and sluggish export activity.




Wholesale & Retail Trade


About one‐third of Metro Denver’s trade employment is in wholesale and two‐thirds in retail. Retail trade is heavily tied to consumer spending, which represents about 70 percent of all economic activity. Consumer behavior has a large influence on how well the economy performs. Consumer confidence for the nation and the Mountain Region, which includes Colorado, maintained levels in 2016 not posted since late 2007. Consumer confidence in the Mountain Region rose significantly in the last few months of 2016 after a slow start to the year. Over the year, consumer confidence in the Mountain region rose 4 percent between December 2015 and 2016.

Retail sales have steadily increased in Metro Denver since 2010, increasing at an annual rate of about 6.6 percent each year. However, the performance among the various retail sectors is disparate. The strongest subsectors have been miscellaneous stores (a category that includes office supplies, pet stores, discount stores, and used merchandise), healthcare, and motor vehicles and parts. Between 2010 and 2015, sales at miscellaneous store retailers increased at an annual rate of about 16.4 percent, healthcare sales increased nearly 15 percent, and sales at motor vehicles and parts dealers increased at a rate of nearly 12 percent each year. Other strong performing subsectors were furniture and home furnishings and building and nursery stores. The slowest growing subsectors included sports and hobby stores (4.7 percent annually), food and beverage (4.3 percent), general merchandise (3.3 percent), gas stations (‐0.7 percent), and non‐store retailers (‐1.7 percent).

Employment in these subsectors has followed similar trends. Based on QCEW data, motor vehicles and parts dealers’ employment increased at an annual rate of about 4.4 percent from 2010 to 2015, among the fastest growing subsectors. Employment at miscellaneous store retailers increased 3.6 percent, healthcare stores increased at a rate of 2.8 percent, and furniture and home furnishings at 3.3 percent. Among the slower growing retailers were electronics and appliance stores (1.9 percent), clothing and accessories (1.5 percent), and general merchandise stores (0.3 percent). The slow growth in general merchandise stores in particular has constrained growth overall in retail trade employment as general merchandise represented about 18.5 percent of the retail employment base in 2015.




Metro Denver is a microcosm of retail changes occurring at a national level. In 2016, many large retailers announced layoffs including Macy’s, Nordstrom, and Walmart. Other retailers are shutting stores including Gap, Sears, and J.C. Penny. A large factor affecting general merchandise and apparel and accessories retailers is a shift away from brick‐and‐mortar retailers to more e‐commerce. For example, Cushman & Wakefield reported that while Macy’s closed 40 of its full‐line department stores in the first quarter of 2016, the move came as its e‐commerce sales spiked by as much as 30 percent over the 2015 holiday season. Shifts in employment related to e‐commerce are evident in Metro Denver as wholesalers and retailers occupy more warehouse and distribution space. The recent announcement by Amazon to hire an additional 1,000 workers to staff its new 1 million‐square‐foot fulfillment center in Aurora is representative of this growing trend. Online browsing may also be replacing in‐store browsing. Forbes reported that according to retailers, about 82 percent of customers conduct research online.

More broadly, the Metro Denver economy has outperformed the nation on several measures including employment and housing, leading to higher consumer spending in the local economy. As the economy continues on an expansionary path and income levels rise, consumer spending will remain strong through 2017. Metro Denver’s housing market is among the hottest in the nation and with home purchases comes furniture and home furnishings, building and landscaping materials, and appliances purchases. A modest increase in oil prices will raise the cost of gasoline, resulting in a boost for this sector with minimal impacts on the cost of other retail goods. General merchandise and apparel stores will continue to struggle and rank among the slowest growing subsectors.

Transportation, Warehousing, and Utilities


After several strong years of growth emerging from the Great Recession, employment in transportation, warehousing, and utilities slowed to 0.3 percent in 2016 and is projected to remain about the same in 2017. Jobs in this supersector include aviation, trucking, storage and warehouse facilities, taxis, rail transportation, and utilities companies.

As the sixth‐busiest airport in the country, Denver International Airport (DEN) set multiple records for passenger traffic in 2016. November 2016 was the busiest November on record for the airport, with almost 4.7 million passengers traveling through the airport and was the 15th consecutive record‐setting month. Passenger traffic between January and November 2016 reached a record 53.4 million passengers, which was 8.1 percent higher than the same period of 2015. United Airlines began renovating the 400,000‐square‐foot building for its new pilot training facility in Stapleton. When construction is completed in 2017, the facility will add about 200 new jobs. Southwest Airlines added 600 new jobs for its Denver operations, part of a 7,000‐person company‐wide expansion in 2016. Frontier Airlines plans to hire 150 cabin crewmembers and will add at least 200 flight attendant and pilot jobs. DEN expects more, direct international service in 2017. Lufthansa announced that flights between Denver and Munich would start operating daily in March 2017. Volaris added nonstop service from Denver to Monterrey, Mexico, expanding service to Mexico’s third‐largest city and the industrial and economic powerhouse of northern Mexico. Southwest also announced seasonal nonstop service to Belize City, Belize.

Remaining portions of the supersector have added workers at a consistent pace. The utilities sector continues to expand in response to population gains. Warehousing and motor freight transportation companies are also increasing consistently due to steady consumer demand. The challenge for warehousing operations is to find available space as the industrial vacancy rate remains near record low levels.




Information


With the advancement of technology and consumers turning to digital media from print media, the information sector contracted by more than 36 percent since 2000, falling from about 84,100 jobs to 53,700 jobs in 2015. Most of the decline occurred from 2000 to 2010, followed by a slow recovery in the past few years. Information is increasingly available free online and through other electronic services. Without the need for traditional publishing jobs, producers of newspapers, periodicals, and books are struggling to stay afloat, resulting in job losses. Further, telecommunications, another main information subsector, has been challenged by changing market strategies and consumer preferences. Despite employment growth in recent years, information employment slowed in 2016 with just 0.4 percent growth. Employment growth is expected to increase slightly to 0.5 percent in 2017.

Metro Denver’s businesses use digital technologies to enhance services, maximize efficiency, and expand information technology networks to better serve their customers and streamline operations. Businesses in Metro Denver rely on fast download and upload speeds to compete in the digital economy, which focuses the region on expanding wireless broadband access and new mobile technologies. The region’s focus on transportation alternatives, combined with significant corporate headquarters and advanced telecommunications infrastructure, provide an ideal environment for teleworking. In fact, Colorado has the highest percentage of telecommuters in the nation. Locally, about 7.3 percent of Denver MSA residents telecommute full time, outpacing the national average by 4.6 percentage points. Denver outranks many major metropolitan areas according to data collected by the Denver Regional Council of Governments.

A number of telecommunications and broadcasting companies made plans to expand their services and work forces in Metro Denver. Some of the most notable included:

Comcast Corp. expanded its VIPER team in downtown Denver with a new office at 15th and Wynkoop. The company’s internet software development division will employ more than 200 workers and 110 contract staff.

Google exercised an option to purchase the land for the second phase of its Boulder campus, which is expected to accommodate another 500 employees. The $150 million project includes a four‐acre campus that will provide 330,000 square feet of office space. The first phase, designed to accommodate up to 1,000 workers, is slated for completion in 2017.

Charter Communications Inc. plans to lease 306,000 square feet in Greenwood Village and will add 800 jobs to the area. The new space will be home to the company’s corporate functions, software and product development, and regional operations.

Financial Activities


The financial activities supersector has a significant presence in Metro Denver as the region serves as the major financial center between Los Angeles and Chicago. The region’s locational assets and competitive environment attract several Forbes Global 2000, Fortune 500, and Inc. 500 Fastest Growing companies. The financial activities supersector expanded in 2016, but at a slower rate than the average annual 2.3 percent rate from 2010 to 2015. About 74 percent of total employment in the supersector is in the finance and insurance industries, and real estate, rental, and leasing activity makes up the remaining 26 percent of the employment. The supersector will be bolstered by an expanding economy that will support financial services, insurance, and real estate employment.




Since 2010, the fastest growing financial activities subsector was securities, commodity contracts, and investment. Based on QCEW data, employment in the subsector increased at an annual rate of 7.5 percent from 2010 to 2015, well above the second fastest growing subsector, real estate, rental, and leasing (2.8 percent). Credit intermediation and related activities was one of the slowest growing financial activities subsectors and includes industries such as commercial banking, credit unions, credit card issuing, mortgage brokers, and financial transactions processing. The subsector grew at an annual rate of just 0.7 percent from 2010 to 2015.

Looking ahead, employment growth is expected to accelerate to 3.2 percent in 2017, making this one of the fastest growing employment supersectors. Similar to the past few years, growth in securities, commodity contracts, and investment, and real estate, rental, and leasing will drive growth in the supersector, influenced by strong commercial and residential real estate markets, bond activity, and other investment banking services. Metro Denver is a major national hub for investment companies and other financial institutions. Several announcements in the industry point to sustained growth for the coming years. Major employment announcements included:

TIAA will add 30,000 square feet of space to its downtown Denver office and plans to add nearly 700 more employees to its existing 1,500 Denver workforce in the next eight years.

Fidelity Investments expanded its Greenwood Village operations, adding about 30,000 square feet of space and 100 additional employees over the past year. The expansion will help the company meet its hiring goal of 300 additional Colorado employees by 2018.

Partners Group Holding AG, a Swiss investment manager, plans to build a campus in Broomfield that will serve as the company’s North American headquarters. The campus will accommodate several hundred employees, the first phase of which is expected to be completed in 2018.

Alliance Data Systems opened its second customer service center in Westminster and plans to double the size of its business by 2020. The Westminster location employs about 800 people and the company is recruiting an additional 50 customer service representatives.

Professional & Business Services


Professional and business services is Metro Denver’s largest supersector by employment, and it contains a diverse group of companies. Some provide expert services including engineering, accounting, legal, and design while others act as consultants, staffing companies, and groundskeepers. Based on data for the Denver MSA, the share of employment in professional and business services is comprised of administrative and waste services (38 percent), management of companies (12 percent), and professional and technical services (50 percent).

The strong growth in professional and business services bodes well for overall economic growth. Many companies will outsource various business services prior to increasing their own staff. Therefore, growth in this supersector tends to precede and accompany overall employment growth. In 2016, expected addition of 9,400 jobs in Metro Denver’s professional and business services supersector represented about 18 percent of the total employment increase. A growing share of Colorado’s professional and business services employment is located in Metro Denver, about 73.5 percent as of November 2016 and 1.2 percentage points higher than year‐ago levels. While professional and business services has been one of Metro Denver’s more robust supersectors, employment declined in non‐metro areas of Colorado from November 2015 to November 2016. Metro Denver’s employment grew an estimated 3.3 percent in 2016 and should expand at a slower rate of 2.5 percent in 2017.

Computer systems design and software engineering are major expanding components of the professional and technical services sector. Metro Denver’s IT‐software industry cluster, with many companies in professional and




business services, was Metro Denver’s fastest growing cluster in 2016. Metro Denver is a global hub of innovation and entrepreneurship, attracting technology and information companies, a talented IT workforce, and venture capital activity. Denver was ranked the best place for business and careers by Forbes for the second year in a row, and was ranked 13th for entrepreneurship growth by the Ewing Marion Kauffman Foundation. Several key company announcements in this subsector included:

Amazon Web Services, a local division of the Seattle‐based online retailer, opened a tech office in Broomfield. The company plans to hire software engineers at the location.

SendGrid relocated its corporate headquarters from Boulder to downtown Denver. The company plans to grow to at least 630 workers by 2020.

Simpro Software, an Australian‐based company, opened a U.S. headquarters in Boulder that could employ up to 100 people within two to three years. The company raised $30.5 million to expand its operations.

Twitter Inc. moved to a new location in Boulder and plans to increase its local employment base by 100 employees. The company leased a new 60,000‐square‐foot building with Class A office and retail space.

Education & Health Services


The education and health services supersector reported significant growth through 2016 as it has each year since at least 1991. In the Denver MSA, the supersector is comprised of private educational services (14 percent of employment) and healthcare and social assistance (86 percent of employment). Demand for healthcare services will rise in coming years due to the demographic shift of an aging population and an increase in insured persons due to the Affordable Care Act. Private educational services will be influenced by opposing trends including continued contraction in technical and trade schools, while employment in schools such as fine arts, sports and recreation instruction, tutoring, and driving schools will continue to grow. Overall, educational services will grow at a rate similar to total Metro Denver employment.

The largest share of private education services employment is in colleges and universities in Metro Denver, followed by private elementary and secondary schools. Growth in these sectors has been slightly slower than the average rate in the overall economy since 2010. Part of the slow growth may be due to the counter‐cyclical nature of enrollment in higher education. However, employment in technical and trade schools in Metro Denver declined rapidly since 2010, an estimated 9 percent decline each year based on QCEW data. The industry has had numerous legal and accreditation challenges. The bright spot in educational services has been rapid growth in other schools and instruction. This category of industries includes fine arts, sports and recreation instruction, tutoring, and driving schools. Based on QCEW data, growth in this industry group has averaged about 9 percent each year since 2010. In particular, sports and recreation instruction grew more than 13 percent each year.

Metro Denver is a leading healthcare and wellness hub and receives support from cutting‐edge research and development facilities, unmatched talent, and state‐of‐the‐art amenities. Since the implementation of the Affordable Care Act, and along with the rapidly changing Colorado health insurance landscape, the insured rate in Colorado continues to increase. In 2006, an estimated 83 percent of Coloradans had health insurance. As of 2015, more than 91 percent were insured. Aside from policy changes, the aging population significantly contributed to the rising demand for healthcare services. Metro Denver’s 65 and older population is projected to increase nearly 75 percent by 2030, increasing the demand for hospital and nursing care, medical goods and services, and long‐term and at‐home services. Based on consumer expenditure research from the U.S. Bureau of Labor Statistics, average out‐of‐pocket healthcare spending increased with age, from $943 for the under‐25 age group to $5,188 for the 65 to 74 years age group. Healthcare’s share of the household budget increased from




3.1 percent for the under‐25 group to 14.3 percent for the 75 years and over age group. The survey did not include people living in nursing homes, so healthcare spending for the older demographic was likely much higher. Other contributing factors to growth in the health services sector included the improving digital healthcare infrastructure and new developments in integrated healthcare.

Overall, employment in the education and health services supersector grew an estimated 3.4 percent in 2016. In 2017, the supersector will once again have one of the fastest growing employment bases, increasing at a forecasted 3.5 percent rate.

Leisure & Hospitality


The leisure and hospitality supersector includes two sectors. The arts, entertainment, and recreation sector includes resorts and ski areas, museums, and other cultural and sports facilities. The other sector, accommodation and food services, includes hotels, restaurants, caterers, and other related businesses. Based on QCEW data, arts, entertainment, and recreation comprises about 16 percent of the supersector employment, accommodation comprises about 9 percent of employment, and food services and drinking places about 75 percent.

Colorado’s world‐class ski resorts attract visitors from around the country and contribute significantly to the state’s leisure and hospitality supersector. Skier visits for the 2015/16 ski season reached nearly 20.8 million, up 5.8 percent compared with the 2014/15 season and the best year on record. Colorado Ski Country USA reported that for its 21 members, the 2015/16 season was the third consecutive year skier visits outpaced the five‐year average. The industry benefited from ideal snowmaking conditions in the fall and copious amounts of early season snow. In the spring, late storms in April extended the season for many resorts. In December 2015, CSCUSA and Vail Resorts released a study that found Colorado’s ski industry generates $4.8 billion in annual economic impact. The study also found that skiing and snowboarding supports 46,000 year‐round jobs in the recreation, lodging, retail, and food service industries. Metro Denver also benefits from the headquarters operations of Vail Resorts and Intrawest, the parent company of Steamboat Springs and Winter Park.

As of November 2016, the Metro Denver hotel occupancy rate averaged about 77 percent in 2016, down about 1 percentage point from 2015. However, occupancy remained strong despite a boom in hotel construction over the past year. The Denver Business Journal reported that the Denver area had an increase of more than 150 percent in new hotel room construction in 2016. There were 4,469 hotel rooms under construction in November 2016 compared with 1,787 in November 2015. Among major markets, only Seattle ranked ahead of Denver in the ranking of the top 10 U.S. markets for new hotel room construction. The average room rate in 2016 was about $142 per night, an increase of 5.4 percent over the 2015 year‐to‐date average of $135 per night.

Employment in food services and drinking places also posted robust growth over‐the‐year. From November 2015 to November 2016, employment grew 5.7 percent. The subsector has also been one of the strongest performing sectors over the past five years. Business leaders in the industry have expressed concern with Colorado’s recent voter approval of Amendment 70 that raised the state’s minimum wage from $8.31 an hour to $9.30 per hour effective January 1, 2017. The minimum wage will increase 90 cents an hour each year until it reaches $12 an hour in 2020. The state’s tipped minimum wage will rise from $5.29 to $8.98 by 2020. Several factors will determine whether the increase will result in slower job growth in the industry including the ability of restaurants to raise prices, the supply and demand for workers, and productivity growth.

Overall, employment in the leisure and hospitality supersector increased by 5 percent in 2016, tying for the fastest growing supersector along with natural resources and construction. The supersector is expected to increase at a slower 3.2 percent pace in 2017.




Other Services


The other services sector is a diverse group of repair and maintenance businesses, beauty salons, grant making organizations, and a variety of other companies. These businesses largely rely on discretionary spending, which has improved with rising consumer confidence and a more favorable job market.

The demand for repair and maintenance on automotive, commercial machinery, electronic equipment, and household goods may be declining as consumers purchase new models of goods that do not require as much maintenance as older models. Despite these challenges, since 2010 employment growth in the subsector has increased at a rate similar to employment overall, an estimated 3.3 percent each year compared with 3.1 percent, respectively. Another boost to the supersector is increased demand for other personal services such as hair and skin care. These services have benefited from the aging population that provides a larger customer base for these services. However, growth in religious, grant making, civic, and other organizations has remained slow. Based on QCEW data, this subsector lost employment from 2014 to 2015 and increased at an annual rate of just 1.5 percent from 2010 to 2015. The sector may have received a boost from election activity in 2016, but employment is expected to slow in 2017.

As the overall economy and household discretionary income increased, other services employment rose by an estimated 2.6 percent in 2016, but is expected to slow to a lower growth rate of 2.3 percent in 2017.

Government


The government is Metro Denver’s third‐largest supersector by employment, representing 14.3 percent of total nonfarm employment. This sector is comprised of federal (13.4 percent), state (25.6 percent), and local workers (61 percent) and includes a variety of services ranging from public safety and community development to national security and public education. Sustained economic growth and increases in tax collections supported 2.6 percent employment growth in Metro Denver’s government supersector in 2016. Employment growth will continue in 2017, but at a slower 1.1 percent pace.

Metro Denver has a strong concentration of federal government employment located in federal field offices, national laboratories, and military installations. Federal employment declined in Metro Denver from 2011 to 2014, but started to increase once again in 2015. Overall, federal employment grew at a moderate pace of 1.4 percent in 2016, which was slightly slower than the 1.9 percent pace recorded in 2015. Employment is expected to remain constant in 2017.

Since the Great Recession, the state government has reported employment growth supported by strong revenue collections throughout Colorado. However, the constitutional spending constraint known as the Taxpayers Bill of Rights (TABOR) limits the growth in revenue to no more than the sum of the rate of the state’s population growth plus inflation in the previous calendar year. Revenue collected above the TABOR limit, subject to the Referendum C cap approved by voters in 2005, must be returned to taxpayers unless voters decide the state can retain the revenue. The lack of flexibility in the state budget can hamper the pace of growth. However, many state facilities and a significant portion of public higher education employment is located in Metro Denver and hiring activity increased at a strong pace in 2016 with employment increasing an estimated 3.1 percent. Employment growth will continue in 2017, but is expected to slow to 1.4 percent.




Metro Denver’s local government employment includes cities, counties, school districts, and special districts. Public education represents about 53 percent of total local government employment. These districts depend heavily on property taxes, sales and use taxes, fees, and intergovernmental revenue sources. The pace of local government hiring picked up in 2015, rising to 3 percent before slowing in 2016. Local governments benefited in recent years from a rise in property values and growing sales and use tax revenue. Further, population growth will increase demand for K‐12 public education and school districts will be adding capacity with new bond issues and additional property taxes due to rising property values. Local government employment increased by an estimated 2.7 percent in 2016 and is expected to increase 1.3 percent in 2017.

Industry Clusters

The prior section described Metro Denver’s employment base according to the federally defined NAICS codes, resulting in 11 supersectors. This section summarizes the nine industry clusters that form the basis of the region’s economic development strategy and are of critical importance to Metro Denver’s national recruitment and business retention and expansion efforts. Industry clusters are geographic concentrations of interconnected companies and institutions in a particular field, bringing companies together across the supersectors. Detailed information on each industry cluster may be found at www.metrodenver.org/industries/overview/.

Aerospace: Colorado has the nation’s second‐largest aerospace economy and is anchored by four military commands, eight major space contractors, National Aeronautics and Space Administration research activities, and more than 400 aerospace companies and suppliers. Metro Denver companies and public agencies are leading the nation’s major commercial, civil, and military space missions and include projects such as the Colorado‐built Juno, which reached Jupiter’s elliptical polar orbit after a five‐year, 1.76‐billion‐mile journey. Sierra Nevada Corporation is changing the commercial space landscape with its Dream Chaser® space transportation system and Lockheed Martin Space Systems is building the Orion Multi‐Purpose Crew Vehicle. Aerospace companies in Metro Denver employ 78 percent of the state’s total aerospace workers.

Aviation: The region’s commercial, reliever, and general aviation airports are major economic catalysts, providing residents and businesses connectivity to worldwide markets and destinations. Denver International Airport (DEN) generates more than $26 billion for the region annually and serves as one of the busiest airline hubs in the world. DEN is the nation’s sixth‐busiest airport and 19th‐busiest worldwide, serving 58 million passengers in 2016. DEN provides nonstop service to more than 185 destinations worldwide, including 20 international destinations in eight countries. Aviation facilities and related companies in Metro Denver employ 80 percent of the state’s total aviation workers.

Beverage Production: Companies in the beverage production cluster manufacture malt beverages, wines, distilled liquors, bottled drinks, and ice products. Celestial Seasonings in Boulder is one of the nation’s largest herbal‐tea manufacturers and Denver‐based WhiteWave Food’s Horizon brand is the biggest




branded milk in the overall U.S. milk market. The region has a lengthy history in America’s craft beer revolution and is often recognized as the “Napa Valley of Beer.” Colorado is home to about 12 percent of the nation’s craft breweries, which contributed $1.7 billion to the state’s economy in 2015. The beverage production cluster employs nearly 7,460 workers in Metro Denver, representing 69 percent of the cluster’s employment in Colorado.

Bioscience: The region’s base of medical devices, diagnostics, biotechnology, and pharmaceuticals businesses employ nearly 13,220 workers. The vibrant and growing bioscience hub includes research institutions, life science expertise, numerous innovation assets, and nearly 570 bioscience companies, as well as opportunities to bring together academic, research, and bioscience companies at the 578‐acre Fitzsimons Innovation Campus and the adjacent Anschutz Medical Campus in Aurora. Companies and organizations in Metro Denver employ 71 percent of the state’s bioscience workers.

Broadcasting & Telecommunications: With 40,650 broadcasting and telecommunications workers, the region is an established, nationally recognized center for the broadcasting and telecommunications industry. Metro Denver is the largest region in the United States to offer one‐bounce satellite uplinks to six of seven continents in the same business day due to its unique geographic location in the Mountain time zone. Companies in Metro Denver employ 84 percent of the state’s total broadcasting and telecommunications workers.

Energy: Metro Denver is an energy powerhouse with both fossil fuels and cleantech together employing 41,760 people at 2,750 companies. The region’s highly educated workforce, world‐class research institutions, business‐friendly environment, and federal laboratories support the region’s growing energy cluster. In fact, the region is home to one of the highest concentrations of federal funded science and research centers in the nation. The National Renewable Energy Laboratory in Golden, the Department of Energy’s only laboratory committed to the research, development, commercialization, and deployment of renewable energy and energy efficiency, is a vital asset to the energy industry. About 59 percent of the state’s total energy employment is located in Metro Denver.

Financial Services: The region is a global epicenter for financial services activities, boasting significant capital, an unmatched talent pool, high quality of life, and a central location with easy global access. The region is the largest financial center between Los Angeles and Chicago. Financial services companies, which include those providing banking and finance services, insurance, and investments, employ 4.6 percent of the region’s total employment base, with over 89,780 employees working in 12,320 companies. Companies and organizations in Metro Denver employ 73 percent of the state’s financial services workers.

Healthcare & Wellness: With an employment base of 185,190 workers in 17,080 companies, the healthcare and wellness cluster is the region’s largest cluster in terms of employment. The region is the healthcare and wellness center of the Rocky Mountain West and is home to one of the most active and fittest populations in the nation. In fact, the region has one of the lowest rates of adult obesity, a high rate of physical activity, and low rates of diabetes and heart disease. Healthcare and wellness companies employ 9.5 percent of the region’s total employment base. Sixty percent of the state’s healthcare and wellness cluster employees work in Metro Denver.

Information Technology ‐ Software: The region’s innovative ecosystem, growing startup businesses, and talented IT workforce create a premier hub for IT‐software companies and industry activities. The region is a top location for young entrepreneurs and tech professionals, and ranked among the top regions that foster entrepreneurial growth in 2016. IT‐software was the region’s fastest growing cluster in 2016 because of landmark company expansion and venture capital activity. The region is home to more than 50,270 IT‐




software workers in 4,650 companies, employing 2.6 percent of the region’s total employment base. About 75 percent of the state’s IT‐software employees work in Metro Denver.

Metro Denver Economy Summary

Metro Denver experienced job growth in each supersector in 2016 for the fourth consecutive year, leading to a gain of 45,400 jobs across the seven‐county area. Employment growth in Metro Denver continued to outpace the nation and the state. In 2017, job gains will continue to be broad‐based but at a slower 2.4 percent pace as labor markets tighten and unemployment remains low. The three fastest growing supersectors in 2016 will likely be among the fastest growing in 2017 including natural resources and construction, education and health services, and leisure and hospitality. Financial services is also expected to re‐emerge as one of the fastest growing supersectors in 2017. The unemployment rate in Metro Denver is expected to average about 3.6 percent in 2017, an increase from 2016 but still one of the lowest rates since 2000. Metro Denver’s expanding economy will continue to be supported by a strong entrepreneurial environment, business friendly policies, and a talented workforce.

Employment growth, increased income, and strong consumer confidence will contribute to healthy consumer spending activity, higher retail sales, and increased sales and use tax revenue for local governments in the Metro Denver region. Demographic changes will boost markets related to housing and healthcare, while some markets will continue to struggle with competition from e‐commerce and changing consumer preferences. Consumer spending will also be shaped by increased labor force participation and earnings of the 65 years and over demographic, boosting work‐related consumer expenditure categories such as apparel and transportation.

Strong net migration and positive economic activity will continue to push home prices higher. However, continued residential construction activity, slower sales activity of existing homes, and potential interest rate increases will ease price pressures. In 2016, multi‐family comprised the majority of the new residential units in the market. However, the balance will shift back to single‐family detached units in 2017, which is more indicative of historic norms.

All four commercial property types (office, industrial, flex, and retail) recorded strong fundamentals in 2016, reporting low vacancy rates and rising average lease rates. While commercial construction will continue at a brisk pace in 2017, much of the activity will be the completion of projects already under construction, with a more limited number of new projects announced.

The strength and diversity of the Metro Denver economy will ensure that the region continues to thrive in 2017. Ongoing development of the FasTracks rail system is opening up new opportunities for housing and nonresidential development. This investment, along with continued improvements at Denver International Airport, recently passed bond issuances for some of the region’s public K‐12 school districts, and a keen focus on entrepreneurship and small business development, provide pieces of the important infrastructure that supports Metro Denver’s vibrant economy.

DATA APPENDIX

Metro Denver Economic Development Corporation | January 2017 | Page 39

Data Appendix

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (e) 2017 (f)

NATIONAL INDICATORS

Population (Thousands) 301,231 304,094 306,772 309,348 311,663 313,998 316,205 318,563 320,897 323,128 325,750

Real GDP (Bil l ions) $14,873.7 $14,830.4 $14,418.7 $14,783.8 $15,020.6 $15,354.6 $15,612.2 $15,982.3 $16,397.2 $16,671.5 $17,054.9

Real GDP Growth Rate 1.8% ‐0.3% ‐2.8% 2.5% 1.6% 2.2% 1.7% 2.4% 2.6% 1.7% 2.3%

Employment Growth Rate 1.1% ‐0.5% ‐4.3% ‐0.7% 1.2% 1.7% 1.6% 1.9% 2.1% 1.7% 1.6%

Unemployment Rate 4.6% 5.8% 9.3% 9.6% 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.8%

Inflation Rate 2.8% 3.8% ‐0.4% 1.6% 3.2% 2.1% 1.5% 1.6% 0.1% 1.3% 2.2%

Personal Income Growth Rate 5.4% 4.1% ‐3.3% 3.1% 6.2% 5.1% 1.2% 4.4% 4.4% 3.6% 4.8%

Prime Rate 8.1% 5.1% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.5% 4.2%

COLORADO INDICATORS

Population (Thousands) 4,821.8 4,901.9 4,976.9 5,050.3 5,120.7 5,193.1 5,272.7 5,356.6 5,456.6 5,555.8 5,655.4

Net Migration 35,000 40,469 36,267 37,570 36,448 40,441 48,469 52,242 69,832 67,857 67,714

Employment Growth Rate 2.3% 0.8% ‐4.5% ‐1.0% 1.6% 2.4% 3.0% 3.5% 3.1% 2.2% 2.1%


Denver‐Boulder‐Greeley Inflation Rate 2.2% 3.9% ‐0.6% 1.9% 3.7% 1.9% 2.8% 2.8% 1.2% 2.8% 3.0%

Personal Income Growth Rate 5.7% 5.1% ‐3.3% 2.4% 7.4% 6.1% 2.3% 6.2% 5.1% 3.6% 5.0%

Retail Trade Sales Growth Rate 7.0% ‐0.6% ‐11.3% 5.5% 8.1% 5.9% 5.0% 7.4% 4.9% 3.8% 4.6%

Housing Permits Growth Rate ‐23.2% ‐35.5% ‐50.8% 23.9% 16.5% 72.6% 18.1% 4.3% 11.1% 27.6% 9.0%

METRO DENVER INDICATORS

Population (Thousands) 2,670.0 2,716.8 2,762.2 2,797.9 2,848.0 2,899.8 2,955.6 3,013.2 3,075.7 3,133.8 3,190.1

Net Migration 18,704 22,326 21,639 13,892 29,147 32,343 36,513 37,823 43,706 38,894 36,821

Employment Growth Rate 2.1% 1.0% ‐4.3% ‐0.5% 1.8% 2.9% 3.6% 3.7% 3.5% 2.9% 2.4%

Non‐Agricultural Employment (Thousands)

TOTAL 1,407.0 1,420.5 1,359.2 1,352.8 1,377.7 1,417.2 1,467.8 1,522.2 1,575.3 1,620.7 1,659.6

Natural Resources & Construction 98.8 97.3 81.4 74.1 73.7 77.5 85.0 95.3 100.2 105.2 109.8

Manufacturing 89.5 87.4 78.5 76.4 78.1 79.8 81.1 82.9 85.8 87.0 88.4

Wholesale & Retail Trade 215.6 215.9 203.5 202.3 205.4 209.9 215.4 221.6 227.6 232.1 236.8

Transp., Warehousing & Util ities 52.3 52.4 49.1 47.3 47.0 48.3 50.7 52.6 54.0 54.1 54.2

Information 56.9 56.0 53.5 52.2 52.1 51.6 52.4 53.1 53.7 53.9 54.2

Financial Activities 107.3 104.9 100.2 98.0 97.8 99.8 103.4 105.3 109.7 111.4 115.0

Professional & Business Services 242.5 247.7 232.3 232.7 241.8 254.1 265.1 275.5 285.1 294.5 301.9

Educational & Health Services 146.9 153.3 157.9 162.6 168.5 174.7 182.0 190.7 199.5 206.3 213.5

Leisure & Hospitality 145.6 147.7 142.7 144.5 149.2 154.3 160.4 167.4 174.6 183.3 189.1

Other Services 52.3 53.7 52.7 52.7 53.6 55.1 56.3 58.2 59.5 61.1 62.5

Government 199.3 204.5 207.5 210.1 210.4 212.2 216.1 219.6 225.8 231.7 234.3


Retail Trade Sales Growth Rate 6.5% ‐0.8% ‐11.3% 5.2% 6.8% 7.3% 5.2% 8.0% 5.5% 5.0% 5.4%

New Residential Units 14,392 9,557 4,288 5,554 7,199 14,925 16,940 16,910 19,269 23,355 22,859

CURRENT AND HISTORIC ECONOMIC INDICATORS

Sources: Board of Governors of the Federal Reserve System; Colorado Department of Labor & Employment, Labor Market Information; Colorado Department of Revenue; Colorado Division of Local Government;

U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; U.S. Census Bureau.

REFERENCES


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www.metrodenver.org/about/affiliates/colorado‐energy‐coalition/ Colorado Hotel and Lodging Association. “Rocky Mountain Lodging Report.” www.coloradolodging.com Colorado Legislative Council. Focus Colorado: Economic and Revenue Forecast. December 20, 2016.

www.colorado.gov Colorado Oil & Gas Conservation Commission. Staff Report. December 12, 2016. www.cogcc.state.co.us Colorado Ski Country USA. www.coloradoski.com CompTIA. Cyberstates 2016: The Definitive State‐by‐State Analysis of the U.S. High‐Technology Industry.

March 1, 2016. www.comptia.org The Conference Board. www.conference‐board.org Congressional Budget Office. www.cbo.gov CoStar Realty Information, Inc. www.costar.com

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Denver Business Journal. Various articles. www.denverbusinessjournal.com Denver International Airport. Finance and Administration Department. www.flydenver.com Denver Metro Association of Realtors. DMAR Real Estate Market Trends Report. January 2017.

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2016. www.imf.org JPMorganChase. “Why Corporate Profits are Down.” September 14, 2016. www.jpmorganchase.com Manpower Inc. www.manpowergroup.com Marcus & Millichap, “Real Estate Investors Re‐Evaluate Transactions Amid Shifting Landscape; Strong

Performance Supports Extended Outlook.” Fourth Quarter 2016.

Metro Denver Economic Development Corporation. 2016 Industry Cluster Study. www.metrodenver.org.

REFERENCES


References

Metro Denver Economic Development Corporation. Toward a More Competitive Colorado, 12th Edition. December 2016. www.metrodenver.org Metro Denver public trustees (various). MoneyRates.com. “The Best Cities for Young Entrepreneurs.” July 2016. www.money‐rates.com Moody’s Analytics. “U.S. Macro Outlook: After the Election Shake‐Up.” November 14, 2016. National Association of Business Economists. www.nabe.com National Association of Realtors. www.realtor.org NerdWallet. “Best Places for STEM Grads 2016.” April 2016. www.nerdwallet.com Office of State Planning and Budgeting. The Colorado Economic Outlook: Economic and Fiscal Review. December

2016. www.colorado.gov Outside Magazine. “The Best Places to Work: 2016.” www.outsideonline.com Regional Transportation District, RTD FasTracks. www.rtd‐fastracks.com S&P/Case‐Shiller Home Price Indices. www.standardandpoors.com University of Colorado at Boulder, Leeds School of Business, Business Research Division. Colorado Business

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2017 Forecast 012317 - Metro DenverGross domestic product will grow at a 2.3 percent pace in 2017, below the historic average of 2.7 percent, but faster than 2016 with rising consumer