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Dr. Phyllis ResnickLead Economist

Colorado Futures Center at CSU

Economic and Fiscal Outlook: US and ColoradoMETRO NORTH CHAMBER OF COMMERCE

ECONOMIC BREAKFAST

FEBRUARY 10, 2017

The Election Changed the US Economic Outlook

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2016 2017 2018 2019 2020 2021

US GDP

Trump Baseline Pre Election baseline

Source: Moody’s

140

142

144

146

148

150

152

154

2016 2017 2018 2019 2020 2021

US Employment (millions)

Trump Baseline Pre Election baseline

Source: Moody’s

4.00%

4.20%

4.40%

4.60%

4.80%

5.00%

5.20%

5.40%

2016 2017 2018 2019 2020 2021

Unemployment Rate: US

Trump Baseline Pre Election baselineSource: Moody’s

What is the Story? President Trump Inheriting a Near Full Employment Economy

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2006

M01

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Perc

ent o

f Lab

or F

orce

Labor Market Profile: US

Hires Rate Openings Rate Layoff and Discharge Rate Quit Rate

Source: US Bureau of Labor Statistics, JOLTS data

What Happens when Stimulus Hits a Full Employment Economy?Higher inflation andHigher interest rates…Ultimately slow economic activity. If economic activity slows it too much???? ◦Not predicting recession in our forecasts, but◦A survey of economists at January’s AEA meeting placed the probability of one higher than before the election

Stimulating a Full Employment Economy Creates Inflation

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2016 2017 2018 2019 2020 2021

US Inflation

Trump Baseline Pre Election baseline

Source: Moody’s

And Ultimately Drives up Interest Rates

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2016 2017 2018 2019 2020 2021

Federal Funds Rate

Trump Baseline Pre Election baseline

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2016 2017 2018 2019 2020 2021

10 Year Treasury Rate

Trump Baseline Pre Election baseline

Source: Moody’s

What Does This Mean for Colorado’s Economy?

Colorado’s Economy will Experience Faster Near Term Growth

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1990

1991

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2034

GDP Colorado

History Forecast

Translates into Short Term Bump in Employment Growth…

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

1991

1992

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2035

Population and Employment Growth - Colorado

Historical Growth - Pop Forecast Growth - Pop Historical Growth- Emp Forecast Growth - Emp

…And in Wages

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Per Capita Wages and Salary Disbursements - Colorado

History Forecast

As with the US, Colorado Inflation Expected to Increase

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1991

1992

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Inflation - DBG CPI

History Forecast

The Strong Expected to Continue to Propel Real Estate Markets

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

198319851987198919911993199519971999200120032005200720092011201320152017201920212023202520272029203120332035

Residential Values ($thousands) - Colorado

History Forecast

And Housing Price Pressure Especially High in Denver Region

59 PER DAY

Additional Households 2015 - 2035

For the State’s Government, it is Good News/Bad News

The Good News…State General Fund Revenue Projections are Strong

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

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1978

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General Fund (in $millions)

History Forecast

But State General Fund will not Fully Benefit from Economic Bump

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

TABOR Allowable Growth and Revenue Growth

POP + INFLATION Growth in Revenue st TABOR

Some Perspective on TABOR Refunds

$-

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

$4,500.00

$5,000.00

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

TABOR Refunds ($millions)

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Refunds as a Share of GF

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Refund Per Capita

And while TABOR Refunds Return…for the First Time in Many Years Gallagher Too is Once Again a Fiscal Issue

Colorado homeowners will get a tax break, thanks to TABOR’s lesser-known cousin. But local

governments will be squeezed.State will have to cover $170 million shortfall for

school districts

Denver Post, January 14, 2017

Residential Growth Expected to Outpace Non-Residential…

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Residential vs. Non-Residnential Value Growth

Growth Residential Growth Non-Residential

…And Residential Rate will Continue to Fall

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

RAR Forecast

Sustainability Study Coming in Late February National outlook suggests a near-term economic bump for Colorado; Longer term outlook riskier Uncertainty in Federal policy makes forecasting more difficultHealth Care Infrastructure spending Trade policy Tax policyTABOR returns as an issue and precludes State from capturing benefit of growing economyAnd Gallagher will shift more K-12 spending responsibility to GF; Negative factor here to stay Sustainability more tenuous?

Thank you!Wishing you a prosperous 2017!

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