2015 Economic Forecast

2015 Economic Forecast for Metro Denver Including Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties February 2015 Prepared By:

Development Research Partners 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 analysis and analytical tools to evaluate and forecast site specific activities and model publicprivate sector relationships. Real Estate Economics Preparation of strategic market data and analysis for prospective real estate development and public private partnerships. Development Research Partners Patty Silverstein, President Erica Blake, Research Economist 10184 West Belleview Avenue Suite 100 Littleton, Colorado 80127 www.developmentresearch.net 303.991.0070

TABLE OF CONTENTS Table of Contents EXECUTIVE SUMMARY... i U.S. ECONOMY... 1 International Economy... 1 Gross Domestic Product... 2 Household Spending... 2 Business Spending... 3 Government Spending... 4 Net Exports... 5 Interest Rates... 5 Employment & Unemployment... 6 Personal Income... 6 Inflation... 7 COLORADO ECONOMY... 8 Employment & Unemployment... 9 Population... 11 Income & Spending... 12 Inflation... 12 Colorado Exports... 13 METRO DENVER ECONOMY... 14 Population... 14 Employment & Unemployment... 16 Industry Overviews... 17 Natural Resources & Construction... 17 Manufacturing... 21 Wholesale & Retail Trade... 22 Transportation, Warehousing & Utilities... 23 Information... 23 Financial Activities... 24 Professional & Business Services... 24 Education & Health Services... 25 Leisure & Hospitality... 26 Other Services... 27 Government... 27 Industry Clusters... 28 Residential Real Estate... 29 Income... 31 DATA APPENDIX... 32 REFERENCES... 33 Metro Denver Economic Development Corporation February 5, 2015

Executive Summary U.S. Economy The United States has started on a new economic growth path. The nation s employment level in mid 2014 finally surpassed the pre recession peak, representing a 76 month job recovery. Job gains have been widespread, with preliminary data suggesting that all states posted an average annual increase in employment from 2013 to 2014. Most analysts expect U.S. economic activity to strengthen in 2015 due to rising wages leading to increased consumer spending, improved home sales and new construction activity, and active business hiring. The employment growth rate is expected to increase from 1.9 percent in 2014 to 2 percent in 2015. Gross domestic product will grow at a 3.1 percent pace in 2015, which is faster than the historic average, spurred by enhanced consumer spending and stronger business investment. As GDP and employment expand, the nation s unemployment rate will drop to 5.5 percent. Rising income and low levels of inflation bode well for the nation s housing markets, with expected increases in construction activity and home sales. A big surprise in the latter part of 2014 was the rapid decline in the price of oil, which dropped from a monthly average price of $106 per barrel in June 2014 to $59 per barrel in December 2014. The resulting drop in gasoline prices means that consumers have more money to spend on other goods, which is a plus for the U.S. economy as a whole. In addition to potentially rising interest rates, the greatest risks to U.S. economic growth are global economic conditions and social and political instability in the Middle East and Russia. Colorado Economy Colorado maintained its ranking as a top 10 state for employment growth during 2014 and will post a strong 2.7 percent increase in employment in 2015. The employment base is expected to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Despite the strong growth rate at the state level, employment growth has not been consistent across the state s regions. Employment growth in Metro Denver has been strong and diverse, while Weld County has been the fastest growing region in the state due to the expanding energy sector. On the other hand, the Colorado Springs metropolitan area has experienced a slower growth rate due to its reliance on military spending, and activity remains sluggish on the Western Slope. As companies continue to increase their staffing levels, Colorado s unemployment rate will steadily decline to levels below full employment, indicating an increasingly tight labor market. Personal income growth will accelerate in 2015 to 6.7 percent due to increasing wages, rising housing prices, and increased investment. Declining unemployment and rising personal income bode well for consumer spending in 2015. Retail trade sales increased by about 7.2 percent in 2014 as more confident consumers were encouraged to shop. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns. 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. Metro Denver Economy Over 60 percent of employment in Colorado is located in the seven county Metro Denver region. Metro Denver job gains accelerated during 2014, finishing out the year stronger than expected with the addition of 46,200 jobs. An additional 45,000 jobs are expected to be added in 2015, representing a 3 percent growth rate. Metro Denver will experience particularly strong employment growth in the education and healthcare services, professional and business services, and leisure and hospitality supersectors. Just as Metro Denver historically was known as a magnet for the baby boomers (born between 1946 and 1964), the region is now a choice location for the millennials (born between 1981 and 1997). The millennials are the Metro Denver Economic Development Corporation February 5, 2015 Page iage i

Executive Summary largest population group in Metro Denver, numbering just over 730,200 in 2015. While the generation X (688,800 population) and baby boomers (681,100 population) dominate the labor force today, the millennials are making their mark on the workplace today and will represent the largest component of the labor force within 10 years. Demographic shifts related to both the millennial and baby boomer generations are changing the face of Metro Denver, which has implications for future labor force growth patterns, consumer spending patterns, and residential real estate needs. The unemployment rate in Metro Denver is expected to average about 4 percent in 2015, representing extremely tight labor market conditions. As baby boomers retire, deep knowledge of the company s operations and business history may also leave. Businesses should carefully consider compensation and amenity packages to attract and retain the best and brightest talent, as advance planning now can make for smoother transitions in the future. With limited supply in the residential real estate market and above average population growth, home prices will continue to rise and construction activity will pick up. The median home price in Metro Denver increased 9.4 percent in 2014 to $306,900 compared to the U.S. median of $207,300, and prices are expected to rise another 6 percent in 2015. Residential building permits rose 5.7 percent between 2013 and 2014 as developers became more confident in the economy and demand continued to rise. An additional 18,800 housing units are anticipated in 2015. Multi family construction represents nearly 50 percent of the new units built, significantly higher than the 35 plus year average of multi family units representing roughly one quarter of construction. The high level of multi family activity reflects more interest in transit oriented development as the FasTracks system nears completion, as well as baby boomers desire for more maintenance free housing options and millennials slow movement into home ownership roles. A vibrant entrepreneurial community bolsters the expanding Metro Denver economy. Indeed, Forbes ranked Denver as the second best city to launch a start up business and NerdWallet ranked Denver the fifth best city in the U.S. for millennial aged entrepreneurs. The solid business fundamentals in Metro Denver ensure that the region will continue to expand in 2015 and beyond. Metro Denver Economic Development Corporation February 5, 2015 Page iiage i

U.S. ECONOMY U.S. Economy The United States is finally on a new economic growth path. The nation s employment level in mid 2014 finally surpassed the pre recession peak, representing a 76 month job recovery. Job gains have been widespread, with preliminary data suggesting that all states posted an average annual increase in employment from 2013 to 2014. The size of the employment gain has differed widely, ranging from a 0.02 percent increase in Alaska to a 4.7 percent increase in North Dakota. This was the sixth consecutive year that North Dakota has posted the highest employment growth rate of the 50 states. Most analysts expect U.S. economic activity to strengthen in 2015 due to rising wages leading to increased consumer spending, improved home sales and new construction activity, and active business hiring. One of the greatest surprises in 2014 was how quickly the unemployment rate declined, falling from a 7.4 percent average annual rate in 2013 to 6.2 percent in 2014. Despite the decline, the Federal Reserve continues to be concerned that labor resources are underutilized. On the plus side, household spending is rising, business investment is improving, and inflation remains stable. For all of these reasons, the Federal Open Market Committee (FOMC) ceased its monthly asset purchasing program in October 2014. Nonetheless, the FOMC s sizable holdings of securities should maintain downward pressure on longer term interest rates, support mortgage markets, make broader financial conditions more accommodative, and promote a strong economic recovery. While slightly rising interest rates are anticipated in 2015, rates are still expected to be low by historic standards. Another big surprise in the latter part of 2014 was the rapid decline in the price of oil. The spot price for West Texas Intermediate crude oil dropped from a monthly average price of $106 per barrel in June 2014 to $59 per barrel in December 2014. The rapid price drop was due to a number of factors including reduced U.S. demand from consumers with more fuel efficient vehicles, rising U.S. oil production due to enhanced drilling technologies, and virtually no change in the amount of crude oil produced by OPEC countries. The resulting drop in gasoline prices means that consumers have more money to spend on other goods, which is a plus for the U.S. economy. Nonetheless, the drop in the price of oil may prove challenging for major oil producing states including Texas, North Dakota, California, Alaska, and Oklahoma. In addition to potentially rising interest rates, the greatest risks to U.S. economic growth are global economic conditions and social and political instability in the Middle East and Russia. International Economy Global economic conditions remain uneven across countries but economic recovery is strengthening, according to the International Monetary Fund (IMF). The IMF expects the global growth rate to average 3.3 percent in 2014, but strengthen to 3.8 percent in 2015. Economic growth in the advanced economies is expected to strengthen from 1.8 percent in 2014 to 2.3 percent in 2015. Expansion will be led by growth in the United States, the United Kingdom, and Canada. Activity in the Eurozone as a whole is expected to increase from 0.8 percent growth in 2014 to 1.3 percent in 2015, boosted by the relative strength of Germany and Spain. To bolster the Eurozone economies, the European Central Bank (ECB) announced plans in January for their version of quantitative easing, with a sovereign bond purchasing program. The ECB expects to purchase around 60 billion euros per month through the end of 2016, with roughly one quarter of the bond purchases likely consisting of German bonds. The value of output in the emerging economies is expected to grow from 4.4 percent in 2014 to 5 percent in 2015. GDP growth is expected to increase in most emerging countries in 2015 with the notable exception of China. While the Russian growth rate is significantly below the rate achieved in 2012, improvements in India, Brazil, Mexico, and South Africa are propelling the emerging economies forward. Metro Denver Economic Development Corporation February 5, 2015 Page 1 1

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 2014. (f) Indicates a forecast figure. Gross Domestic Product: +2.5 percent in 2014(e); +3.1 percent in 2015(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 2010, annual GDP growth averaged about 2.8 percent; growth above that trend has often meant falling unemployment rates, and below trend growth resulted in a stagnant economy. GDP growth averaged 2.2 percent between 2010 and 2014. Severe weather during the first quarter of 2014 led to the first contraction in GDP since the first quarter of 2011. However, the economy reported a quick and robust recovery in the second and third quarters. The third quarter of 2014 had above average GDP growth, recording a 5 percent growth rate. Advanced estimates suggest that the fourth quarter GDP expanded at a slower rate of 2.6 percent. With personal consumption and business growth slowly improving, annual growth is forecast to be 2.5 percent in 2014 and accelerate to 3.1 percent in 2015. Reasons for the increase in growth are easiest 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 near or above two thirds of national output and has a long term average annual growth rate of 3 percent. Household spending surpassed its long term trend, averaging 3.2 percent growth during the third quarter of 2014. Spending should continue to improve as consumers become more confident in the economy and employment opportunities arise. Several factors may also be contributing to improved levels of spending growth: Metro Denver Economic Development Corporation February 5, 2015 Page 2 2

U.S. ECONOMY U.S. Economy Wage growth pressure just starting to develop. Wage growth over the last few years has been slow and irregular as the unemployment rate fell at a moderate pace. Moody s Analytics reported that many measures show wage growth stuck around 2 percent per year, which is about the same rate as consumer price inflation. An above average unemployment rate establishes greater competition in the labor market, giving job market candidates less latitude for salary negotiation. Until the unemployment rate reaches a steady level below the natural rate of unemployment, which differing views place between 4 and 5 percent, companies will continue to hire at lower wages and wage growth is unlikely. As many states are posting unemployment rates below that level, wages are now expected to grow. In addition, over half the states have minimum wage levels above the federal minimum wage level. Higher minimum wage at the state level could allow for increased competition in traditionally lower wage jobs. Stocks and real estate reported gains but not all households benefited. According to the S&P/Case Shiller home price indices, the national home index was up 4.6 percent between October 2013 and 2014. While higher home prices help create a positive wealth effect for many American households, they are also barriers for firsttime home buyers. The National Association of Realtors (NAR) reported that 62 percent of the millennial generation rents an apartment while 20 percent live with their parents, relatives, or friends. The NAR also reported that 97 percent of millennial home buyers financed, compared with 55 percent of the silent generation, and the average down payment of millennials was only five percent. Data from Freddie Mac also show the total home equity cashed out through refinancing during the first three quarters of 2014 ($17.6 billion) was 0.3 percent below the level one year earlier, indicating fewer households are seeking financing through home equity. The stock market had a volatile year in 2014, but the S&P 500, NASDAQ, and DJIA reported positive annual returns. The stock market volatility was in response to political uncertainty at the national and international level as well as inconsistencies in economic indicators. Household debt composition is improving. After the housing bubble burst in 2007, total household debt was inconsistently low over the last eight years. However, the second quarter of 2014 reported the highest level of total household debt since the first quarter of 2008. Mortgage debt growth has remained negative since the recession but recorded three quarters of positive debt since the second quarter of 2013, the first quarters of growth since the fourth quarter of 2009. Consumer credit debt is continuing to grow, reaching the highest levels since at least 2006. Business Spending Corporate profits (after tax) rose slightly during the first half of 2014, rising over 47 percent since the first half of 2008. While businesses became more productive with smaller workforces in the years following the recession, workforce increases are now occurring. As businesses spend more on labor, company profits will soften. Metro Denver Economic Development Corporation February 5, 2015 Page 3 3

U.S. ECONOMY U.S. Economy Business spending on real estate has steadily increased since the first quarter of 2013, with six consecutive quarters of over the quarter growth. The growth in structures is attributed to increased investment in manufacturing and power and communication structures. Spending on equipment and software has reached the highest level since the first quarter of 2002. Industrial and transportation equipment reported increased investment, while research and development led the growth in intellectual property products. This indicates that businesses are slowly investing in facilities, but are much more willing to invest in equipment and intellectual property to increase competitiveness and productivity. Government Spending According to the Congressional Budget Office (CBO), the federal budget deficit for fiscal year 2014 is forecast to be $506 billion as of August 2014. The projected 2014 level would be 25.1 percent lower than the prior year s deficit and represent 2.9 percent of GDP. The declining federal deficit as a percentage of GDP will mark the fifth consecutive year in which the deficit has declined as a share of GDP since peaking at 9.8 percent in 2009. However, the CBO stated that given current federal policies, the period of deficit reduction could end. If current policies do not change, the CBO expects the deficit as a share of GDP to increase from 2.9 percent in 2014 to 4 percent near the end of 2024, mostly due to the aging population, rising healthcare costs, expansion of federal subsidies for health insurance, and growing interest payments on federal debt. The International Monetary Fund s World Outlook Database reports that the U.S. government gross debt in 2014 was estimated to be over 105 percent of GDP, the seventh highest rate of the world s advanced economies. In February, Congress agreed to raise the federal debt ceiling without any conditions attached. The new legislation will allow the Treasury Department to borrow normally and raise the borrowing limit until March of 2015 when they would have to reset the borrowing cap, which is currently at $17.2 trillion. The 2012 Census of Government: Finance Surveys of State and Local Governments reported that total expenditures by state and local governments increased 18.2 percent between 2007 and 2012 to $3.2 trillion. Census Bureau spokespersons stated that state and local government revenues continue to be impacted by capital market fluctuations, particularly employee retirement revenues. Tax revenues rose 8.2 percent during the period and accounted for 53.4 percent of total state and local general revenues in 2012. Expenditures rose significantly in many areas such as education (+12.3 percent), public welfare (+26.2 percent), insurance trust Metro Denver Economic Development Corporation February 5, 2015 Page 4 4

U.S. ECONOMY U.S. Economy (+62 percent), unemployment compensation (+230 percent), and hospitals (+30.2 percent). Colorado was one of four states where unemployment compensation quintupled (+430.6 percent) from $290.6 million to $1.5 billion between 2007 and 2012. Net Exports Demand for U.S. exports grew during 2014, rising 2.9 through November compared with the same period in 2013. Imports were also 3.3 percent higher during the same period. Imports and exports rose to their highest levels since the availability of data in 1992. Major U.S. exports include transportation equipment, computers, and oil products. The ongoing domestic energy boom has helped reduce dependence on foreign oil, which eased pressure on the trade deficit. The nation s largest trading partners are Canada, Mexico, China, Japan, and Germany. With Japan in a recession, China s economy slowing down, and the collapse of the Russian currency, investment in the U.S. dollar has increased, leading to an appreciation of the dollar during the third quarter. Continued investment and sustained strength in the dollar could weaken export growth in the coming months. Interest Rates Prime rate: 3.25 percent in 2014; 3.35 percent in 2015(f). The Federal Reserve has kept its target federal funds rate within a record low range of zero to 0.25 percent since December 2008. The October 2014 meeting of the Federal Open Market Committee (FOMC) led to the announcement that it will end its purchases of mortgage backed securities and longer term Treasury securities and reinvest payments of its holdings into securities. The committee stated that in order to support continued progress toward maximum employment and price stability, it would maintain the zero to 0.25 percent target range for the federal funds rate until maximum employment and 2 percent inflation are achieved. Assuming inflation remains below the Federal Reserve target rate of 2 percent, the Fed will likely maintain low interest rates. The FOMC stated that if there is faster progress toward the target inflation rate than what the committee currently expects interest rates would rise sooner than currently anticipated. However, if progress towards the target rate were slower than expected, the increase in interest rates would be later than expected. Analysts have predicted the prime rate will increase to 3.4 percent by the end of 2015. Metro Denver Economic Development Corporation February 5, 2015 Page 5 5

U.S. ECONOMY U.S. Economy Employment & Unemployment Employment: +1.9 percent in 2014(e); +2.0 percent in 2015(f). Unemployment: 6.2 percent in 2014(e); 5.5 percent in 2015(f). The U.S. employment situation improved significantly in 2014, averaging just over 1.9 percent growth for the year. The non seasonally adjusted employment level in December was 1.8 million jobs above the pre recession peak of 139.4 million jobs in November 2007. The lengthy nature of the recession and recovery has discouraged job seekers who have been unemployed for months. In 2014, unemployed individuals over the age of 16 remained jobless for an average of 8 months, which is one month less than the prior year but four months more than before the Great Recession. The labor force participation rate fell to 62.7 percent in December, while the U.S. unemployment rate fell to 5.4 percent in December. The White House Council of Economic Advisors stated that 2014 was an economic milestone for the United States. The council reported that America s businesses added jobs at the fastest rate since the 1990s. It was also reported that the drop in the unemployment rate was the largest decline in 30 years. According to the most recent Manpower Employment Outlook Survey for the first quarter of 2015, hiring will be unchanged compared with the fourth quarter of 2014 as the number of companies expecting to hire held at 19 percent. Compared with the yearago level, the first quarter number was 2 percentage points higher in 2015 than 2014. Further, the percentage of companies planning to hold employment steady remained at 73 percent in the first quarters of 2014 and 2015. Only 6 percent of companies expect to reduce their workforce, lower than the 7 percent rate reported one year prior. Personal Income Income growth: +4.1 percent in 2014(e); +5.2 percent in 2015(f). Personal income has several components: earnings from work, asset based income, and government social insurance (transfer) payments. Slack in the labor market has not pushed wages as high as hoped, leaving wagebased income growth slow. The stock market experienced a volatile year in 2014, hitting record highs, but not all households experienced the wealth effect of well performing stocks. The payroll tax increase in 2013 also decreased personal income gains. Metro Denver Economic Development Corporation February 5, 2015 Page 6 6

U.S. ECONOMY U.S. Economy Personal income growth is expected to accelerate in 2015 as wage growth resumes, leading to a 5.2 percent increase, up from the 4.1 percent increase in 2014. Inflation Consumer Price Index: +1.7 percent in 2014; +2.0 percent in 2015(f). As noted above, the Federal Reserve target inflation rate is 2 percent in the mediumterm, and the 2014 average was 1.7 percent. As the Federal Reserve has pledged to keep interest rates low until unemployment eases, inflation will rise by 2 percent in 2015. New technologies and exploration are increasing the production of crude oil. The U.S. Federal Energy Information Administration reported that U.S. crude oil production averaged 9 million barrels per day in November of 2014 and that crude oil production will increase to 9.3 million barrels a day in 2015. The agency stated that the increased production would push down the average gasoline price to $2.60 per gallon, a decline of 77 cents compared with the 2014 price. As this economic forecast report was released, the U.S. price of gasoline is averaging closer to $2.00 per gallon. Depending on 2014 market conditions, oil production may slow in response to low prices. Falling gas prices should reduce the pace of energy inflation growth, slowing annual price growth and keeping overall inflation at the Federal Reserve s long term objective. Food price inflation is expected to be normal to slightly lower than average in 2015 compared with 2014. According to a forecast of consumer prices by the Economic Research Service at the U.S. Department of Agriculture, food prices may increase 2 to 3 percent. However, the USDA stated that with significant drought conditions in California, Texas, and Oklahoma there is potential for long lasting effects on prices for fruit, vegetables, dairy, eggs, and beef. National Economy Summary The United States has started on its new economic growth path, with employment growth occurring in all 50 states in 2014. The employment growth rate is expected to increase from 1.9 percent in 2014 to 2 percent in 2015. Gross domestic product will grow at a 3.1 percent pace in 2015, which is faster than the historic average, spurred by enhanced consumer spending and stronger business investment. As GDP and employment expand, the nation s unemployment rate will drop to 5.5 percent. Rising income and low levels of inflation bode well for the nation s housing markets, with expected increases in construction activity and home sales. Metro Denver Economic Development Corporation February 5, 2015 Page 7 7

COLORADO ECONOMY Colorado Economy Colorado is expected to maintain its ranking as a top 10 state for employment growth during 2014, although final state employment data for the year will not be released until March. Colorado ranked 40th of the 50 states in job growth in 2010, a year when most states were continuing to shed jobs. The state soared to the third position in 2013, with the addition of about 68,000 jobs. Employers in Colorado continued to add jobs at a faster pace than the national average in 2014. Preliminary numbers suggest state employment growth of 3 percent in 2014, which is higher than the national growth rate of 1.9 percent. The employment base will continue to expand to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. Historically, Colorado has amplified national employment trends, with peaks rising above national levels and troughs declining below. However, Colorado growth trends have begun to converge with the nation as its economy matures. This convergence will not stop the state from performing above average, with employment and income growth expected to outpace the nation. 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 2015 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 2014, the state ranked: first on Business Insider s list of the nation s top economies for its low unemployment, high non farm payroll jobs, high GDP growth, and a greatly diversified economy. third highest employment growth rate, based on Quarterly Census of Employment and Wages data from the U.S. Bureau of Labor Statistics. fifth best state for business by Forbes. Colorado was noted for its labor supply and growth prospects. fifth best state for entrepreneurship activity by the Ewing Marion Kauffman Foundation, with 380 entrepreneurs per 100,000 adults. sixth in the 2014 State New Economy Index by the Information and Innovation Foundation due to the state s dynamic economy and second most highly educated workforce. eighth on Ewing Marion Kauffman Foundation s most small business friendly states list. High ranking states have effective government training and networking programs, friendly local government regulations, and effortless employee hiring. ninth by the U.S. Bureau of Economic Analysis for the fastest growth in gross domestic product in 2013. These favorable rankings suggest the state will continue to grow solidly and attract attention as a highly desirable place to live and work. Metro Denver Economic Development Corporation February 5, 2015 Page 8 8

COLORADO ECONOMY Colorado Economy Employment & Unemployment Note: Annual benchmark revisions to the employment and unemployment data series can significantly alter historic trends. As 2014 job data will be revised in March 2015, the exact revisions are not yet known. The following forecast is based on expected revisions to the data. Employment: +3.0 percent in 2014(e); +2.7 percent in 2015(f). Unemployment: 5.3 percent in 2014(e); 4.3 percent in 2015(f). Colorado employment increased an estimated 3 percent in 2014, the highest growth for the state since 2000. Estimates show the state gained 70,700 jobs in 2014 compared with 2013, and it is expected to gain another 66,200 jobs during 2015. Data from the U.S. Department of Labor s Current Employment Statistics show that statewide employment surpassed its pre recession peak in April 2013. Indeed, Colorado was one of only about 13 states to have reached full recovery by that time. Colorado s strongest performing supersector was natural resources and construction, reporting a 7.2 percent increase between November 2013 and 2014. The natural resources and construction supersector added 11,700 jobs during the same period. The leisure and hospitality supersector and the manufacturing sector also reported strong growth over the year, increasing 4.6 percent and 4.3 percent, respectively. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Ten of the eleven supersectors in Colorado are expected to have employment growth, with the information supersector reporting no change in employment levels. Despite the strong employment growth rate at the state level, employment growth has not been consistent across the state s regions. Employment growth in Metro Denver has been strong and diverse, while the Greeley Metropolitan Statistical Area (MSA), which consists of all of Weld County, has been the fastest growing region in the state due to the expanding energy sector. On the other hand, the Colorado Springs MSA (El Paso County) has experienced a slower growth rate due to its reliance on military spending. Employment growth also remains sluggish on the Western Slope, as indicated by the 0.5 percent growth rate posted in the Grand Junction MSA through November 2014. An additional key facet of Colorado s employment base is the state s level of entrepreneurial activity. Sole proprietors are Metro Denver Economic Development Corporation February 5, 2015 Page 9 9

COLORADO ECONOMY Colorado Economy not counted in the nonfarm employment numbers for the state, and these individuals represent a tremendous force in the state. In 2013, Colorado had over 837,000 sole proprietors, earning nearly $25.7 billion in income. Colorado has the fourth highest concentration of sole proprietors of the 50 states. Many of these individuals can start or operate their business anywhere in the country, so the fact that they choose Colorado is a testament to the state s innovative environment, support for business startups, and attractive quality of life. The Manpower Employment Outlook Survey for Colorado showed a healthy employment outlook compared with the nation between the first quarters of 2014 and 2015. Hiring expectations rose significantly during the first quarter of 2015 compared with the prior year, rising 6 percentage points. The percent of companies planning to lay off workers rose 1 percentage point during the period. The percent of companies planning to lay off employees and increase employment levels were both lower than the fourth quarter 2014. Since the third quarter of 2014, nearly one quarter of Colorado employers surveyed planned to increase staffing levels. This shows that Colorado employers are optimistic about their business future. However, over two third of employers have reported they plan to maintain staffing levels, signaling employers are still cautious of economic conditions. Nonetheless, the percentage of employers maintaining the status quo in Colorado is less than the national average. As companies continue to increase their staffing levels, Colorado s unemployment rate will steadily decline to levels below full employment, indicating an increasingly tight labor market. The state s unemployment rate will remain below the national average. Further, the state tied with Hawaii and New Hampshire for the seventh lowest rate of the 50 states as of December 2014. Unemployment varies considerably throughout the state, with the Pueblo, Colorado Springs, and Grand Junction metropolitan areas experiencing rates that are 1 to 2 percentage points higher than Metro Denver and Northern Colorado. In Colorado, peak unemployment was reached in March 2010 when 9.6 percent of the civilian labor force was unemployed (261,000 people). In contrast, 116,000 fewer people throughout the state were looking for work in 2014. While Colorado s unemployment rate dropped significantly in 2014, there was still an imbalance in the employment market. Not all employed individuals are paired with the job for which they are most qualified. The underemployment rate, referred to as U 6 unemployment, tracks individuals who are marginally attached to the labor force. This includes individuals who work part time and would prefer a full time position or individuals who are not employed but who would join the labor force under better circumstances. Colorado Employment Outlook Survey 1Q 4Q 3Q 2Q 1Q 2015 2014 2014 2014 2014 Colorado % Hiring 23% 24% 26% 19% 17% % Laying Off 6% 7% 7% 4% 5% % No Change 68% 68% 64% 75% 76% % Unsure 3% 1% 3% 2% 2% U.S. % Hiring 19% 19% 22% 19% 17% % Laying Off 6% 7% 4% 4% 7% % No Change 73% 72% 71% 71% 73% % Unsure 2% 2% 3% 3% 3% Source: Manpower Inc. Metro Denver Economic Development Corporation February 5, 2015 Page 10 10

COLORADO ECONOMY Colorado Economy In 2013, Colorado s underemployment rate was 12.5 percent, nearly 3 percentage points below the peak level of 15.4 percent in 2010. High underemployment rates during recessionary periods are expected trends, as individuals who were laid off settle for jobs they would not ordinarily take during economic expansions. Indeed, the underemployment rate tends to be roughly double the unemployment rate. At the prerecession peak in 2007, Colorado unemployment was at 3.8 percent and the underemployment rate was at 7.3 percent, a difference of 3.5 percentage points. This shows that even during times of economic prosperity, there is a large portion of the labor force that is underemployed. Of the 50 states, Colorado had the 22nd lowest underemployment rate in 2013. North Dakota, South Dakota, and Nebraska were the states with the lowest underemployment rates, which can be attributed to their strong energy sectors. Population Population: 5.35 million in 2014(e) (+1.6 percent); 5.44 million in 2015(f) (+1.7 percent). According to data from the Colorado State Demography Office, the state s population growth rate averaged 1.5 percent per year between 2004 and 2013. The population growth rate was estimated to be 1.6 percent in 2014 and may accelerate slightly to 1.7 percent in 2015. Looking further in the future, total population is expected to increase an average of 1.7 percent per year through 2020. 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 63 percent of the state s population increase in 2015. By 2020, net migration s share is projected to increase to over 65 percent. Colorado is experiencing two major demographic shifts in the state s population. First, in 2014, 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 fourth lowest share of those 65+ (10 percent) in 2010. By 2025, this percentage will increase to 17 percent of the population. This means that the over 65 population will double from 2010 to 2025, with the population increasing from 555,000 to 1.1 million. Metro Denver Economic Development Corporation February 5, 2015 Page 11 11

COLORADO ECONOMY Colorado Economy Income and Spending Personal Income: +5.7 percent in 2014(e); +6.7 percent in 2015(f). Retail Trade Sales: +7.2 percent in 2014(e); +6.0 percent in 2015(f). Personal income growth in Colorado during 2014 was supported by improving economic conditions throughout the state. Declining unemployment, rising housing prices, and increased investment contributed to Colorado s strong personal income gains through the year. As the employment situation continues to improve with unemployment reaching the lowest levels since the mid 2000s, personal income should continue to increase as wages begin to rise. However, over the next few years there will be a structural shift in the labor force with the millennial generation becoming the dominant demographic in the labor force and the remaining baby boomer generation entering retirement. This demographic shift could lead to lower average wages as the millennial generation gains more work experience. In 2014, personal income increased 5.7 percent and growth will accelerate in 2015 to 6.7 percent. Retail trade sales in Colorado increased in 2014 as unemployment declined and more confident consumers were encouraged to shop. As of December 2014, Consumer confidence in the Mountain Region was nearly 16 percent higher than in 2013. Coupled with personal income growth, retail trade sales will rise as the state economy continues to expand. In 2014, retail trade sales grew 7.2 percent. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns. Inflation Denver Boulder Greeley CPI: +2.8 percent in 2014(e); +2.5 percent in 2015(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 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 Metro Denver Economic Development Corporation February 5, 2015 Page 12 12

COLORADO ECONOMY Colorado Economy U.S. in 2011, 2013, and 2014, which is a trend that is expected to continue in 2015. Inflation in the Denver Boulder Greeley area is expected to decline to 2.5 percent in 2015, due to lower gasoline prices and moderating home prices. CPI data for the Denver Boulder Greeley area suggests a few categories are driving the price increases that are faster than the national average. Through the first half of 2014, housing costs rose 5 percent over the year and transportation was up 2.3 percent. During the same period, housing costs in the U.S. were up 2.6 percent and transportation was up 0.3 percent. Additionally, energy costs rose 3.9 percent in the Denver Boulder Greeley index, while energy costs declined by 1.6 percent in the U.S. Colorado Exports Colorado exports declined slightly through 2014. Through the first nine months of 2014, Colorado exports fell 2.6 percent compared with the same period in 2013 and could reach an annual total of $8.4 billion. This decline follows a 4.7 percent increase in 2013 and an 11.3 percent increase in 2012. With this recent decrease, Colorado slipped below the top 25 percent of U.S. states in export dollars for 2014, when both goods and services exported are considered. According to the U.S. Census Bureau, Colorado s top three trade partners were Canada, Mexico, and China, accounting for 41.5 percent of total Colorado export activity. With the outlook for China s growth expected to temper in the medium term, Colorado exports to China may slow as well. However, global demand for goods should rise as the global economy picks up, pointing to overall trade growth for the state. Major Colorado exports include beef, engines, medical equipment, and computers. The 2014 year to date decline in overall exports is attributed to a 21 percent decline in engine exports. Colorado Economy Summary Colorado maintained its ranking as a top 10 state for employment growth during 2014 and will post a strong 2.7 percent increase in employment in 2015. The employment base is expected to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Despite the strong growth rate at the state level, employment growth has not been consistent across the state s regions. As companies continue to increase their staffing levels, Colorado s unemployment rate will steadily decline to levels below full employment, indicating an increasingly tight labor market. Personal income growth will accelerate in 2015 to 6.7 percent due to increasing wages, rising housing prices, and increased investment. Declining unemployment and rising personal income bode well for consumer spending in 2015. Retail trade sales increased by about 7.2 percent in 2014 as more confident consumers were encouraged to shop. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns. 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. Metro Denver Economic Development Corporation February 5, 2015 Page 13 13

METRO DENVER ECONOMY 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 significant expansionary trends in 2014 and similar trends are expected for 2015. Compared with the national average, employment growth in Metro Denver was 1.3 percentage points higher at 3.2 percent and included gains in each supersector except information. The expanding Metro Denver economy is bolstered by a vibrant entrepreneurial community, an active start up market, and strong population growth. Metro Denver received several accolades in 2014, including: Washington Post ranked the Denver Aurora Lakewood MSA first for attracting college educated workers. NerdWallet ranked the Denver Aurora Lakewood MSA ninth for science, technology, engineering, and mathematics graduates. Forbes ranked Denver as the second best city to launch a start up business. NerdWallet ranked Denver the fifth best city in the U.S. for millennial aged entrepreneurs. Forbes ranked Denver the sixth fastest growing city for population and economic growth. CBRE Global Research ranked Denver 11th for high tech job growth. Metro Denver will experience particularly strong employment growth in the education and healthcare services, professional and business services, and leisure and hospitality supersectors. With limited supply in the residential real estate market and above average population growth, home prices will continue to rise and construction activity will pick up. Altogether, Metro Denver will continue to experience above average growth in 2015. Population Population: 3.00 million in 2014(e) (+1.7 percent); 3.05 million in 2015(f) (+1.7 percent). The seven county Metro Denver area is now home to 3 million people. Metro Denver s population growth averaged 1.7 percent per year between 2008 and 2013, 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 hold steady at 1.7 percent in 2014 and 2015 and average 1.6 percent growth through 2020. Population growth at this pace would be significantly faster than the projected U.S. growth rate of 0.8 percent in 2015. The state demographer expects population growth between 2014 and 2015 will be 1 The Denver Aurora Lakewood MSA includes Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park Counties. Metro Denver Economic Development Corporation February 5, 2015 Page 14 14

METRO DENVER ECONOMY Metro Denver Economy fastest in the City and County of Broomfield (+2.7 percent), the City and County of Denver (+2.1 percent), and Adams (+2.0 percent) and Douglas Counties (+1.8 percent). Growth will also be relatively rapid in Weld County (+2.7 percent), which lies northeast of the seven county Metro Denver region. Weld County s growth is a reflection of the recent energy boom, but the area s growth may not increase as rapidly as companies respond to lower energy prices. 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 50.7 percent of population growth on average between 2004 and 2014. While birth rates declined significantly during the Great Recession, they are expected to reach prerecession levels over the next 5 years. In 2012 and 2013, net migration in Metro Denver accounted for more than 75 percent of total Colorado migration. Demographic forecasts anticipate that the Metro Denver area will shift towards historical trends in 2015, capturing 55 percent of Colorado s net migration. Just as Metro Denver historically was known as a magnet for the baby boomers, the region is now a choice location for the millennials. The millennials are the largest population group in Metro Denver, numbering just over 730,200 in 2015. While the generation X (688,800 population) and baby boomers (681,100 population) dominate the labor force today, the millennials are making their mark on the workplace today and will represent the largest component of the labor force within 10 years. 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 yet been established. These generational shifts will have large impacts on the business community. As baby boomers retire, deep knowledge of the company s operations and business history may also leave. Further, given expected tight labor market conditions with the unemployment rate averaging 4 percent in 2015, companies should carefully consider compensation and amenity packages to attract and retain the best and brightest talent. Advance planning now can make for smoother transitions in the future. Metro Denver Economic Development Corporation February 5, 2015 Page 15 15