March 2017

Legislative Council Staff

Economic and Revenue Forecast

2

The U.S. and Colorado economies are expected to

continue to expand at a moderate pace over the

forecast period.

• Business activity has improved

• Modest rebound in oil and gas industry activity

• Consumer spending remains healthy

• Employers continue to add jobs at a moderate rate

3

The U.S. economy continues to expand.

U.S. Real Gross Domestic Product Annual Percent Change and Contributions

Source: Bureau of Economic Analysis.

-0.3%

-2.8%

2.5%

1.6% 2.2% 1.7% 2.4%

2.6%

1.6%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Personal Consumption

Gross Private Investment

Gov't Consumption & investment

Net exports

Real GDP

4

U.S. Nonfarm Employment Year-over-Year Change in February 2017

Source: Bureau of Labor Statistics. Seasonally adjusted.

3.0%

2.4%

2.3%

3.4%

2.0%

1.0%

2.0%

2.9%

3.3%

2.3%

0.9%

1.0%

2.0%

0.8%

3.0%

2.0%

3.2%

1.0%

0.9%

1.7%

1.7%

2.1%

0.1%

-0.3%

0.0%

-4.2%

-0.5%

Percent Change

571.0

511.0

416.7

293.2

257.0

234.0

227.9

225.2

176.0

172.0

158.0

119.0

106.2

97.7

94.3

88.6

65.6

51.0

48.3

44.0

38.8

29.1

27.0

-0.3

-5.0

-12.0

-20.0

Professional & Business Services

Education & Health Services

Health Care & Social Assistance

Professional & Technical Services

Leisure & Hospitality

Trade, Transportation & Utilities

Accommodation & Food Services

Administrative & Support Services

Construction

Financial Activities

Government

Local Government

Finance & Insurance

Retail Trade

Educational Services

Transportation & Warehousing

Real Estate, Rental, & Leasing

Other Services

Wholesale Trade

Federal Government

Management of Companies & Enterprises

Arts, Entertainment, & Recreation

Manufacturing

Utilities

State Government

Mining & Logging

Information Services

Thousands of Jobs

Job gains have been broad-based across most industries.

5

Colorado Nonfarm Employment Year-over-Year Change in February 2017

Source: Bureau of Labor Statistics. Seasonally adjusted.

3.5%

3.9%

2.2%

2.8%

3.9%

3.1%

1.7%

1.8%

3.0%

3.6%

2.9%

2.8%

1.5%

1.3%

2.9%

6.5%

1.5%

0.7%

1.9%

0.7%

0.8%

1.5%

1.0%

-1.1%

-0.8%

-14.7%

Percent Change

10.5

10.1

8.3

8.0

7.6

7.5

7.1

6.6

4.9

3.4

3.3

3.1

3.0

2.6

2.6

2.3

1.5

1.1

0.9

0.7

0.5

0.5

0.4

-0.4

-1.7

-3.3

Education & Health Services

Health Care & Social Assistance

Professional & Business Services

Leisure & Hospitality

Professional, Scientific & Technical Services

Accomodation & Food Services

Trade, Transportation & Utilities

Government

Financial Activities

Transportation & Utilities

Finance & Insurance

State Government

Retail Trade

Local Government

Other Services

Real Estate

Construction

Administrative & Support Services

Federal Government

Wholesale Trade

Information

Arts, Entertainment & Recreation

Educational Services

Management of Companies & Enterprises

Manufacturing

Mining & Logging

Thousands of Jobs

6

U.S. corporate profits and manufacturing activity continue

to improve.

Sources: Bureau of Economic Analysis and Institute for Supply Management.

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

2006 2008 2010 2012 2014 2016

Proprietors'

Income

Equipment & Intellectual

Property Investment

Corporate Profits

after Tax

30

35

40

45

50

55

60

65

70

2006 2008 2010 2012 2014 2016

Business Investment, Income & Profits Trillions of Dollars

ISM Manufacturing Index Diffusion Index

Contracting

Expanding

7

Residential real estate indicators remain encouraging for

both national and Colorado housing markets.

Source: U.S. Census Bureau. Seasonally adjusted three-month moving averages.

0

50

100

150

200

250

2006 2008 2010 2012 2014 2016

Multi-FamilySingle Family

0.0

1.0

2.0

3.0

4.0

5.0

2006 2008 2010 2012 2014 2016

Residential Building Permits Thousands of Units

United States Colorado

8

Inflation has been rising.

Source: U.S. Bureau of Labor Statistics. Inflation is calculated as the growth in urban area prices in a given period relative to the same

period in the prior year. *Headline inflation includes all products and services. **Core inflation excludes food and energy prices.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2007 2009 2011 2013 2015 2017

2.8%

2.2%

15.6%

0.0%

3.2%

0.4%

6.6%

3.5%

1.5%

2.7%

2.0%

Headline

Core

Energy

Food

Housing

Apparel

Transportation

Medical Care

Recreation

Education

Other

Consumer Price Index for All U.S. Urban Areas Year-over-Year Change in Prices

2.8% Headline*

2.2% Core**

February 2017

Selected Components

February 2017

9

Economy activity remains oriented towards further

advancement at a moderate pace for the Colorado and

U.S economies.

Several factors that will continue to slow growth.

1) Full employment

2) Monetary policy

3) Demographic change

10

2%

4%

6%

8%

10%

12%

14%

16%

18%

2007 2009 2011 2013 2015 2017

4.7%

2.9%

Economic indicators suggest the nation is nearing full

employment.

Source: Bureau of Labor Statistics. Seasonally adjusted. Colorado U6 rates shown as four-month moving averages.

U.S.

Colorado

Unemployment (U3)

Underemployment (U6)

Unemployment and Underemployment Rates

9.2%

7.3%

U.S.

Colorado

11

$0

$1

$2

$3

$4

$5

2007 2009 2011 2013 2015 2017

Monetary policy will slowly tighten.

Source: Federal Reserve Board of Governors.

0%

1%

2%

3%

4%

5%

6%

2007 2009 2011 2013 2015 2017

Federal Reserve Balance Sheet

Traditional Portfolio

All Other

Central Bank

Liquidity Swaps

Mortgage Backed Securities

& Federal Agency Debt

Effective Federal Funds Rate

Trillions

12

The aging of the population is changing income and

consumption patterns.

Average Income by Age, 2015

Thousands of Dollars

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Source: Bureau of Labor Statistics, 2015 Current Expenditure Survey.

Age Cohorts

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Average Expenditures by Age, 2015

Thousands of Dollars

Age Cohorts

13

$6.6

$5.5

$7.7

$6.5

$10.0

$11.7

$0

$2

$4

$6

$8

$10

$12

General Fund Revenue Billions of Dollars

Source: Office of the State Controller and Legislative Council Staff March 2017 revenue forecast.

Increase relative to

December expectations

Expectations for revenue were increased slightly relative

to the December forecast.

14

2,068

1,582

1,933 1,870 1,800

1,850

$0

$500

$1,000

$1,500

$2,000

$2,500

Source: Office of the State Controller and Legislative Council Staff March 2017 revenue forecast.

General fund revenue is projected to grow at a rate just

slightly faster than inflation and population growth.

General Fund Revenue Inflation-adjusted, per capita

15

-$113.8

$256.5 $287.2

-$161.8

$264.1 $288.6

-$300

-$150

$0

$150

$300 December

March

TABOR Outlook

Revenue Above/(Below) the TABOR Limit

About 2.5% of General Fund Revenue

Halved Senate Bill 09-228 Transfers

Current Year

FY 2016-17

FY 2017-18

Budget Year

FY 2018-19

Out Year

Source: Office of the State Controller and Legislative Council Staff March 2017 revenue forecast.

16

-$169.2 -$190.9 -$169.1

-$400

-$300

-$200

-$100

$0

$100

$200

$300

This Year’s General Fund Budget Situation

FY 2016-17

General Fund Revenue

Relative to 6.5 percent Reserve

Published

December

After

Supplementals March

Source: Legislative Council Staff and Joint Budget Committee Staff.

17

$215.7 $237.5 $254.2

$0

$50

$100

$150

$200

$250

$300

December Supplemental March

Next Year’s General Fund Budget Situation

FY 2017-18

General Fund Revenue

Relative to Baseline Expenditures

Published

December

After

Supplementals March

Source: Legislative Council Staff and Joint Budget Committee Staff.

18

Revenue Available for

Other Obligations

Refill Reserve to 6.5%*

Other Constitutional Spending

Set Aside for TABOR Refund

Capital Cons. & Transportation

Other Statutory Spending

-$400

-$200

$0

$200

$400

$600

$800

$169.1 million*

$254.2 million

New Revenue New Obligations

Change in Revenue & Obligations FY 2016-17 to FY 2017-18

$538.9 million

-$78.5 million

-$76.5 million

$264.1 million

*Assumes $169.2 million FY 2016-17 shortfall is addressed by reducing the reserve and no change in operating

appropriations between FT 2016-17 and FY 2017-18.