Colorado’s Current Economy: Challenges and Opportunities

BY NATALIE ROONEY

Even with uncertainty in the marketplace influencing not just Colorado, but everywhere across the country, Patty Silverstein, president and chief economist of Development Research Partners, says the Centennial State is still ahead of the pack when it comes to where we are in the economic cycle. That’s not to say there isn’t some ugliness out there, because there definitely is.

THE ELEPHANT IN THE ROOM

First and foremost, there’s the elephant in the room: inflation. “It’s one of the greatest challenges right now for businesses trying to figure out how to price their goods and get what they need because of the supply chain, the price of gas, and the price of shelter all of which are influencing the market,” Silverstein explains. Companies are looking at hiring patterns and making sure wages allow employees to pay the cost of living. Meanwhile, the Fed has been taking aggressive action to bring inflation under control. Silverstein says, “When you look back at the last eight recessions since 1970, we’ve typically had a period of high inflation before each recession occurred. That marker has people shaking in their shoes.”

PATTY’S ECONOMIC MEASURES TO WATCH

When Silverstein gives presentations and economic updates, she offers “Patty’s Economic Measures to Watch.” Are those indicators flashing “recession,” or is it just a market correction that needs to happen? Inflation is definitely on the list of measures to watch. Also high on the list is Gross Domestic Product (GDP), which Silverstein says is always a potential indicator for recession. When recessions are officially declared, GDP is only one indicator, but it is often held up as a measure to watch closely. “Yes, there are reasons why GDP declined – inventory adjustments, changes in government spending, and the reality of coming out of COVID,” she explains. “The level of growth we were seeing prior to the pandemic wasn’t sustainable from a historical perspective so there are reasons why GDP declined, but everyone focuses on those two consecutive quarters of negative growth.” According to the Bureau of Economic Analysis, real GDP decreased at an annual rate of 0.6 percent in the second quarter of 2022, following a decrease of 1.6 percent in the first quarter.

A BALANCING ACT

Another one of “Patty’s Measures” is what’s going on with our households, and that’s where Silverstein has some good news to share: “Our households are still in pretty good shape. There are some undercurrents that credit card debt is starting to rise, but overall, things look good.” Consumer spending is important because it represents 68-70 percent of overall economic activity. “If that looks good, it supports growth,” Silverstein explains. “How you and I feel about what’s happening out there is important. If households are concerned a recession is going to happen, they hunker down and don’t spend.” Ironically, the result of that behavior tends to be a recession.

Silverstein cautions that the Fed is trying to ensure households aren’t too exuberant right now, hence the continued raising of interest rates to get people to pull back and temper spending. Inflation now is different from inflation in the past. “It’s not because you and I are trying to spend so much more money out there. It’s really more of a supply than demand issue,” Silverstein says. So, households are still spending, but we’re seeing that pull back as interest rates have risen. “That’s a good correction because last year, spending was up 20 percent,” Silverstein says. “That’s unsustainable. You need these corrections, but it’s a fine, fine balancing act between supply and demand.”

AN AGING LABOR FORCE

Our current labor force is shaped by the domestic population, and the truth is, the labor force is aging. “Some people who were already planning to retire have decided to get out earlier than they originally planned,” Silverstein says. “This came at the same time we were experiencing the tail end of one of the largest demographic cohorts – Baby Boomers – retiring.” Millennials are the largest current population group, but even with Gen Zs entering the workforce, the two groups combined aren’t producing enough newcomers to counteract the surge in Boomer retirements. “For years, we’ve relied on this gap to be filled by people coming into the country from elsewhere across the globe, but we don’t have that now,” Silverstein says. “We’re seeing how constrained that labor market is when we’re relying only on domestic labor.”

GOOD STUFF STILL IS HAPPENING

Despite the ugly stuff - inflation, the stock market, interest rates, and GDP, Silverstein says really good stuff is happening in Colorado. We’re basically at full employment. “Anyone who wants a job should be able to find a job here.” The July 2022 Job Openings and Labor Turnover Survey (JOLTS) showed Colorado had more than 225,000 open jobs and only 107,000 people unemployed, so the job market is still hot.

“People will ask about the skill level and income level of those open positions,” Silverstein notes. “Many of the jobs are lower skill and lower wage positions in the leisure and hospitality, restaurant, and entertainment venues. When you look at Colorado, our employment in that whole sector has improved since the 2020 shutdowns, but we’re still below where the employment level was in 2019.” Where did all those people go, and are they working, are common post-pandemic questions. No, they’re not at home sitting on the couch, Silverstein says. Some dropped out of the workforce, but many more retrained and took new opportunities. Colorado has the second highest labor force participation rate in the country. “We have a group of people who want to be productive and are ready to work, but there might be a mismatch between jobs that are open and what job seekers are looking for,” she explains. “It takes time to transition people from one career path to another.”

For companies, this means operating in a 3.3 percent unemployment rate environment when 4.5 to 5 percent is considered full employment. Compared to other parts of the country, some areas are below 2 percent unemployment – an incredibly tight labor market. “It’s another factor in the whole inflation story,” Silverstein says. “Companies are having to bid up wages in order to lure people to their businesses whether that’s from a competitor, from other parts of the country, or encouraging transition from other occupations.” The increases in wages are part of the reason for inflation, and the wage/price spiral is hard to break, Silverstein cautions. She encourages people in hiring roles to find new ways to attract talent without necessarily increasing wages. “Once you set a new high bar, it doesn’t come back down. Consider adding more vacation days or differentiating with your benefits package. These are expectations regarding things like big ticket purchases and employment situations. And when you start acting like a recession is inevitable, guess what? A recession happens.” Silverstein emphasizes, “The smooth landing and transitions are still possible. It’s often said that a recession is when you don’t have a job and you want one. That’s not the case right now. We have some scary, but very exciting corrections happening in our housing market. Those had to happen. There are scary corrections with consumer spending. Also, necessary. Then there’s construction activity. All of these things changing lend more equilibrium to our marketplace, but those changes are happening rapidly.” Silverstein says she has often joked that 2020 was just a couple of months ago… wasn’t it? “We’ve all forgotten what a reasonable level of activity was, and then the pandemic happened. So, these transitions feel scary,” she acknowledges. “Looking at the last couple of years for insight into next

Despite the ugly stuff ... Silverstein says really good stuff is happening in Colorado.

things you can adjust over time, but wages just don’t come back down. Companies need to think about their long-term strategies for attracting and keeping workers.”

FEELING MOODY

Another one of “Patty’s Economic Measures” is the mood of business. There is uncertainty in the marketplace – on both the employer and the employee sides. “We’re at a point in the economy where we can tip either way,” Silverstein says. “We could shake this thing off and figure out new growth patterns, or we can go into a recession.” When Silverstein looks at her indicators, four are clearly saying recession, and the other six are saying some corrections needed to happen for longer term growth in the economy. “I’m still in the school of thought that recession isn’t inevitable, but most people think it is,” Silverstein says. “That pains me. If people feel that we’re in a recessionary environment, they act accordingly in terms of their spending, planning, and future year just doesn’t work right now. You have to dig back into what your operations were in 2017, 2018, and 2019 to get back onto that trend. What is it going to take?” Silverstein uses the housing market as an example. She spoke with a realtor group still operating under the premise that you put a house on the market one day, and it sells the next day with a 20 percent yearly appreciation. “None of that is reasonable,” she says. “It’s COVID amnesia. We don’t remember what is normal. Even as we’re seeing movements back to normal, we think they’re extreme changes. They’re not.”

WHAT CPAS SHOULD DO NEXT

Silverstein says a CPA’s top priority should be to ensure clients are in a safe, secure position to handle whatever comes next. “Make sure their cash flow and savings are solid,” she suggests. “For clients that are able, encourage them to keep investing and spending. There is so much good happening that we just need to weather a little bit of a storm.”

Making Time for Ourselves

BY ANGELA ROBERTS, CPA, CHAIR

Since 2001, the COCPA has held an annual leadership event which has evolved into the Leadership Summit. It’s not only a cost-effective way to earn CPE credits, but also it offers the invaluable opportunity to get out of your work space, connect with your colleagues in person, and take a deep dive into an important topic. This year, the theme was “Leadership from the Inside Out.” Members from all over the state attended, which speaks to the importance we’re all placing on leadership development. With so much change happening in the world at large and in our profession, it is critical for us to take time out for ourselves and invest in our critical, non-technical skills.

During the day, we discussed how each of us defines leadership and how that affects the environment in which we work. We thought about the most effective and successful leaders in our own lives and the characteristics and attributes that make them great leaders. Words like honesty and integrity and phrases like “able to listen” filled a whiteboard. We debated whether integrity and the ability to listen are more about your mindset or more of a skill. Can mindset actually be taught? Ultimately, we concluded that learning to be a good leader is about aligning your mindset with your skills. Consider this: Companies and organizations are constantly measuring and balancing their results and the environment in which they achieve those results. As a leader, when we focus only on results, often we are creating a negative environment. That negative environment actually backfires, and we do not get the results we would like to achieve. When we make decisions as leaders, we need to balance both the results and the environment to create a sustainable and successful outcome. As a group, we looked over the whiteboard list of characteristics of a successful leader. What wasn’t on the list? Results. So, when we think about impactful leaders, it’s not their results that we value; it’s how they make us feel. Results are how we value an organization but not how we value the leader.

When was the last time you thought about things like this in your own realm? It's so important to spend time reflecting on what kind of leaders we are and how people see us, starting with ourselves – from the inside out. Additional speakers helped us dig a little deeper into our own leadership style. Chris Laping walked us through the Six Types of Working Genius, developed by well-known author Patrick Lencioni. This is all about who you are and how you fit into your team at work. The concept is straightforward: Six fundamental activities are required for any type of work. Together, they create a simple framework for how work gets done: • Wonder • Invention • Discernment • Galvanizing • Enablement • Tenacity The theory is that when people better understand the types of work that bring them energy and fulfillment and avoid work that leads to frustration and failure, they can be more self-aware, more productive, and more successful. You can take the Six Types of Working Genius assessment online (www.workinggenius.com) and learn which two of the six types come naturally to you, meaning that you are good at them and that they give you energy and joy – your areas of Working Genius. Two others are identified as neither natural nor energizing for you, and most likely, you aren’t particularly good at doing them – your areas of Working Frustration. The final two types identified are those which fall in between. You can do them fairly well, maybe even very well, but you don’t derive great joy or energy from them – your areas of Working Competency. As a leader, it’s important to recognize that all six of these geniuses are essential for a team to work effectively. Is your team balanced with the right amount of genius? Andrea Kimura led us through a session on mindful leadership and making leadership more intentional. Barbara Stevens drew on her decades of corporate experience in speaking about learning to be great leaders and managers so that we can increase accountability within our teams; attract and retain employees; and foster a great culture. The day wrapped with a panel of presenters who spoke about leadership and culture in the post-pandemic workplace. The future is certainly bright as the workplace keeps evolving. Even in these challenging and rapidly changing times, the profession’s future still is bright too. I see it in the number of young people who attended this year’s CPAs Make a Difference celebration and when I heard at Leadership Summit that more than 60 percent of the employees in KPMG’s Denver office are under 28 years old. It’s exciting and encouraging! The next time you have the opportunity to attend a leadership event – whether it’s in or out of your comfort zone – take it and encourage others to participate, too. Our young professionals need these opportunities to learn and develop their skills. And, for those of us further along in our careers, we need to be continuous learners and take time for ourselves. We all need it!