Wednesday, March 9, 2016

Inflation-adjusted median incomes in Colorado have moved little over the past decade

Now that median household income data is available for 2014, let's take a new look at how incomes are doing in Colorado.

There are numerous measures of median incomes, but two of the easiest to find and most widely used  are the 5-year estimates from the American Community Survey (ACS) and the data from the Annual Social and Economic Supplement (CPS ASEC) from the Census Bureau.

Let's begin with the ACS data.

Using 5-year estimates in current dollars from the ACS, we get the following values for median household income:


According to the ACS, the 5-year estimate for median household income in 2014 was $59,448. That was up 1.7 percent from the year before:


Overall, however, we can see that over the past four years, the median income has been rather stable.

If we adjust for inflation, however, we find that the median incomes have been declining slightly:


There are numerous implications to this, of course. If median incomes are basically flat, but home prices are increasing at a rate of five to ten percent, this will certainly impact the affordability of housing. We'll look at this in future posts.

Other Census Data 

Using the 1-year median income measure from the Annual Social and Economic Supplement (CPS ASEC), we get the following:


Here we find a bit more volatility in the numbers, although, like the ACS data, they tend to hover around $60,000.

Measured in terms of year-over-year changes, we find that 2014 saw an decrease of 3.8 percent in its median income, which followed a very large increase for 2013 over 2012:



Overall, we can conclude that median income hasn't really moved much since 2007 when it peaked toward the end of the last economic expansion. In 2013, median incomes hit a new peak, but then fell below 2007 levels again in 2014.

The picture sours a bit more when we adjust these values for inflation. In 2014 dollars:


In this case, it's more clear that Colorado's median income has not returned to where it was in 2007. More or less, Colorado's median income is today where it was a decade ago.

Regardless of which measure we use here, it's likely safe to say that the median income in Colorado is somewhere around $60,000. Since the end of the last recession in 2009, nominal incomes have increased somewhat, although it is unclear if, once we adjust for inflation, whether or not households have made much headway relative to where we were at the peak of the last economic expansion.

*To adjust for inflation, I've used the Denver-Boulder-Greeley CPI. All graphs in this article are for Colorado statewide.

Colorado's Coincident Index at lowest growth rate recorded in 44 months

Each Month, the Philadelphia Fed releases its Coincident Index, which is designed to summarize the economy in a single statistic. According to the Philly Fed, the index number combines:

nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
During December 2015, Colorado's index grew by 3.27 percent, year over year. This was identical to November's YOY growth rate, and was down from December 2014's growth rate of 5.53 percent.

With November 2015, December's growth rate was tied for the lowest growth rate reported in 44 months. The last time we saw growth at a lower rate was during March 2012 when the index grew 3.20 percent:


Compared to the nation overall, Colorado growth has generally outpaced the nation. During December 2015, the nationwide index growth, year over year, was 3.19 percent. during November 2015, the growth rate was 3.23 percent, and it was 3.82 percent during December 2014. In recent months, Colorado, which had been outpacing the US by a healthy margin, has fallen to growth rate more in line with what we're seeing nationally:

Some of this trend can be attributable to declines in oil extraction activity. If we look at growth on a state by state basis, we do see that the two states with the most negative growth are Wyoming and North Dakota, where oil extraction has been a major part of the economy. Oil does not dominate Colorado's economy like it does some states, but it will have an impact in the statewide numbers, and that is likely a factor here.


FHFA's Colorado Home Price Index up 9.5 Percent at end of 2015

According to the Federal Housing Finance Agency's "Expanded-Data" index, house prices were up 9.5 percent, year over year, during the fourth quarter of 2015 in Colorado. It was the lowest growth rate in four quarters, but still showed robust growth for what continues to be an upward trend in home prices for much of Colorado:


Overall, Colorado has seen growth rates of 8 to 10 percent for the past 13 quarters, although this doesn't quite match the growth experienced toward the end of the dot-com boom of the late 1990s. The YOY growth rate was 107. percent during the third quarter of 2015, and it was 9.4 percent during the fourth quarter of 2014.

Most of this was driven by growth in the metro Denver area and northern Colorado. Using the same index, we see that growth in the Denver-Aurora-Lakewood area showed a very similar pattern:

In this case, we see the pattern is the same although the growth rates are slightly stronger in metro Denver than for the state overall. This suggests less robust growth in the state outside the metro Denver area.

During the fourth quarter of 2015, the YOY growth rate was 11.8 percent. The growth rate was 13.2 percent during the third quarter of 2015, and 9.4 percent during the last quarter of 2014.

For now, there is no evidence of any significant softening in the market as of the end of last year. The most recent Case-Shiller home price data, for December 2015, showed little drop off from the 15-year highs that we've seen in that index in recent years.

 In a future post, we can look at FHFA index numbers for the smaller markets. For more information on the FHFA index, see here.

Colorado among states least dependent on federal spending

The Pew Charitable Trusts last week released its updated survey of federal spending in the states. According to the survey's 2014 data (the most recent available), federal spending in Colorado was equal to 17 percent of the state's GDP, putting it at 15th lowest in the nation: 


In total, $51.1 billion in federal dollars were spent in Colorado in 2014. If we compare to Colorado's total GDP of approximately $295 billion it does indeed match up with Pew's number of 17 percent of GDP. 

Mapped out, the states look like this.  The states where federal spending is more central to the local economies are generally found in the southeastern US and in the mid-Atlantic region.  New Mexico also, however, is consistently a state that tends to rely heavily on federal spending: 

So what's driving the federal spending? Is it welfare, military spending, social security payments or something else? 

Last week, we looked at military spending by state and found that Colorado was 18th in the nation for military spending as a percentage of state GDP. 

This chart breaks out the components. Military spending will show up under "salaries and wages," "grants" and "contracts."   


In Colorado, the $51 billion spent in Colorado breaks out like this: 



As with most states, Colorado's largest piece of federal spending is found in retirement benefits such as Social Security payments. That is followed by non-retirement benefits. The Pew survey classifies Medicare as a non-retirement benefit, and it's likely that health care spending is a major component of non-retirement benefit spending. Colorado has a fairly large number of both military and non-military federal employees, and salaries and wages make up 13 percent of federal spending the state. 

To compare, here is the 2013 data from last year

How does Federal Spending Compare to Federal Taxes Paid by Coloradans? 

The Pew data by itself gives us a sense of how essential federal spending is to a local economy, but that's only one side of the federal tax equation. Coloradans also pay federal taxes. 

If we compare the Pew data to IRS tax revenue, we can examine how much federal tax revenue is flowing out of Colorado to Washington, DC, and how much of that comes back. 

It turns out that Colorado is more or a less a "break even" state in the sense that the federal government spends around one dollar of federal money for every dollar of federal tax revenue collected from Colorado. 

This can vary over time, but if we compare Pew's 2014 spending data to the IRS tax revenue data (gross receipts minus refunds) we find that for every dollar collected in federal taxes from Colorado, the state received $1.11 in federal spending. That means Colorado receives the 17th-smallest amount of federal spending for per dollar spent in taxes:



At $1.11, Colorado also falls below the nationwide number for spending vs. tax revenue since (by this measure) nationwide, the US government spends $1.21 per dollar in tax revenue. This is made possible by deficit spending.

There are thus three types of states: "net tax payer" states that tend to pay in more than they receive back in federal spending; "break even" states that tend to come in near one dollar  in spending for each dollar paid  in; "net tax receiver" states that receive considerably more in federal spending than they pay in.

If we map out the states based on how much states receive compared to taxes paid, we can put Colorado among the "break even" states. In the map, the "break even" states receive 75 cents to $1.25 per dollar paid in federal taxes.  The "net tax payer" states are Nebraska, Minnesota, New Jersey, and Delaware. These states tend to pay in considerably more in tax revenue than they receive back. 

Numerous factors can affect whether or not a state is a net tax payer state or not. Areas that are more rural and reliant on agriculture will tend to be net tax receiver areas both because farmers and ranchers receive federal subsidies in many cases, and also because agricultural work tends to have lower productivity (in the technical sense) than urban work.

Urban areas, in contrast, produce higher incomes, and therefore most of the tax revenue. So, highly metropolitan states (which includes Colorado) will tend to more often be "break even" or "net tax payer" states.

States that receive large amounts of military spending will also tend to show up as net tax receiver states, such as Virginia and South Carolina.


Monday, March 7, 2016

'USNews and World Report' ranks Denver and Colorado Springs among best cities

USNews and World Report launched its Best Places to Live Rankings, and Denver came in at number one. Colorado Springs also ranked in the top ten at number five:


WASHINGTON, March 2, 2016 /PRNewswire-USNewswire/ -- U.S. News & World Report today unveiled the 2016 Best Places to Live in the United States. The new list ranks the country's 100 largest metropolitan areas based on affordability, job prospects and quality of life. Denver, Colorado, is named the No. 1 place to live on the inaugural list, followed by Austin, Texas, at No. 2. Fayetteville, Arkansas, and Raleigh-Durham, North Carolina, take the No. 3 and No. 4 spots, respectively. A second Colorado city, Colorado Springs, rounds out the top five. 
With a close proximity to Denver and the Rocky Mountains, Colorado Springs ranks in the top 10 because it is viewed as a desirable place to live. Fayetteville, Arkansas, makes the list for being the most affordable, while Boise, Idaho, scores high due to a low rate of crime and high quality of life. Boise also has one of the lowest unemployment rates out of the top 10. The full rankings are available here.


The top ten:

  • 1. Denver, CO 
  • 2. Austin, TX
  • 3. Fayetteville, AR
  • 4. Raleigh-Durham, NC
  • 5. Colorado Springs, CO
  • 6. Boise, ID
  • 7. Seattle, WA
  • 8. Washington, DC
  • 9. San Francisco, CA
  • 10. San Jose, CA


This isn't exactly the most scientific survey ever, although you can be sure that local chambers of commerce will be adding the ranking to their marketing materials. 

Friday, February 26, 2016

Colorado Springs apartment vacancies remain near 14-year lows

During the third quarter of 2015, the average multifamily vacancy rate in Colorado Springs dipped to 4.2 percent, which was the lowest vacancy rate recorded since 2001.

During the fourth quarter of 2015, the vacancy rose slightly to 5.0, but remained down from the fourth quarter of 2014, which had a vacancy rate of  5.3 percent:


Clearly, the overall trend has been downward since 2004. In fact, the vacancy rate even went down in the midst of the 2008-2009 financial crisis. This was unusual because vacancy rates typically increase when unemployment increases. However, in Colorado Springs, the declining vacancy may have reflected a flight from homeownership to rental apartments in the wake of high foreclosure rates. 

In order to check for seasonal factors, we can also separate out the quarters to see how 2015's fourth quarter compares to other fourth quarters. As expected, it turns  out that 2015's fourth quarter was the lowest vacancy rate found in any fourth quarter over the past decade: 


Rich Laden reports in the Colorado Springs Gazette:

Several factors are driving rent increases, industry experts have said. Even as historically low mortgage rates make homebuying attractive, many people want to live in apartments. In particular, mobile-minded young people - so-called millennials - don't want to be tied to a mortgage and are driving demand, experts have said. Empty nesters who are downsizing and want maintenance-free living also are a part of the mix of renters. At the same time, the construction of Springs-area apartments isn't necessarily keeping pace. From 2012 through 2015, nearly 2,800 units were built and added to the overall supply of apartments for rent, the Housing Division and Apartment Association report showed. And yet, an additional 3,366 apartments were rented and occupied during that four-year span.What's more, apartment construction during the recession years was minimal; only 778 new units were added in the Colorado Springs area from 2007 through 2011.

For more on this, see our previous articles here at ryanmcmaken.com: "Colorado Springs permits hit four-year low" and "Colorado Springs: New housing construction not keeping up with household creation."

Colorado Springs: New housing construction not keeping up with household creation

With new apartment vacancy data coming out for Colorado Springs, it may be helpful to take a look at household formation versus new unit construction in the Colorado Springs area.

For now, we only have data up through mid 2014, but we can get a sense of the overall trend.

(These numbers are from the Colorado Demography Office and are based on population and household data. The total household number is based on occupied housing unit data, and the housing unit data originates with the US Commerce Dept., and includes both single-family and multifamily.)

In 2014, new household formation and new housing units were fairly even matched.We can see that both increased by about 1.25 percent. Specifically, housing units increased by 1.2 percent while households increased by 1.3 percent (for Colorado Springs):



Not all years are as evenly, matched, though. We can see back in 2010 there was a lot more household growth than there was new unit construction. Back in 2003, there was a lot more housing construction than there was new household growth.

Not surprisingly this reflect what we might have suspected all along — namely that during the housing boom, housing construction was outpacing new household formation, while it has been the opposite since the financial crisis.

To look at this a different way, let's look at the difference between the total number of new units and the total number of new households.

In this graph, for example, we see that in 2014, there were 94 more households formed than there were new units constructed. By contrast, in 2003, there were 6498 fewer households formed than there were new housing units.

Since 2008, this points toward a tight housing market, and will likely mean low vacancy rates, since we know from this that only a small portion of new units have been multifamily (for Colorado Springs):


Wednesday, February 24, 2016

Latest Case-Shiller Home Price Index: Denver metro home price index up 10.2 percent

During December 2015, home price growth in the Denver area, according to the Case-Shiller index, remained at some of the highest levels seen in a decade, with year-over-year growth at 10.2 percent. That's down from November's year-over-year rate of 10.8 percent, but up slightly from December 2014's rate of 10.1 percent.

The first graph shows the year-over-year comparisons for the past decade:


We can see that growth is topping what it was during the nationwide housing bubble that existed prior to 2008. Clearly, for-sale housing demand remains rather robust in the region (at least as of December).

Compared to the 20-city composite index for home prices, Denver continues to see even greater growth. In fact, metro Denve rgrowth has been almost double the 20-city composite growth in recent months:


As noted here, as of December 2015, employment growth in Metro Denver has been slowing, but apparently not enough to bring down the sizable growth rates we've been seeing in home prices in recent years. Global and national economic trends do show reasons for concern about slowing economic growth, and we do see slowing employment growth stateside, but it seems we'll need current trends to persist longer before we see significant changes in for-sale housing demand in these numbers.

Military spending by state: Colorado ranked 18th

With the arrival of the presidential primaries (and especially the one in South Carolina), i'm reminded that military spending can be a major factor in state level politics. Some states owe very large portions of their state's GDP to military spending, and it's not a coincidence that Southern states are known for their pro-military voting blocs. Many states in that regions have economies intimately tied to their local economies.

To see where Colorado fits in this, we can look at a 2011 study conducted by Bloomberg that examines military spending by state. The key factor we'll look at here is the amount of  military spending in each state, compared to the overall GDP.

When mapped out, it looks like this:


This statistics is not to be confused with total military spending. California, for example, receives much more military spending, overall, than Colorado does, but proportional to their overall economy, military spending in California is smaller in California than it is in Colorado. 

In Colorado, military spending is equal to 4.3 percent of the state's total GDP. We could compare that to a top-ten state like Virginia where military spending is equal to 13.9 percent of the state's economy. In South Carolina, the percentage is 5.7 percent. 

The state least dependent on military spending is Minnesota where the percentage is 1.1 percent. 

As a region, the Rocky Mountain Region outside Arizona is not largely dependent on military spending, with both Wyoming and Idaho in the bottom ten:


All in all, Colorado ranks in the middle at number 18. The amount of military spending the the state if fairly large for a state of our size and population, but thanks to a highly productive work force and lots of non-military federal spending, the overall comparative size of military spending in the state does not put us near the top of the list.

Colorado Springs permits hit four-year low


During December 2015, single-family permits in Colorado Springs were tied with January 2015 for the lowest level of permits reported since December 2011. There were 124 single-family permits reported during December 2015, which was the same amount reported during January 2015.

The first graph shows single-family permits, by month, over the past fifteen years:


During 2015, permits peaked during the summer, as usual, with 311 permits reported during July 2015.

For December, though, if we compare to other Decembers, in order to take seasonal factors into account, we find that December 2015 was the least active December in four years:


December's numbers are not enough to suggest a downward trend in themselves, although the trend since 2012 has rather clearly been a flat one, with little movement up or down.

Nevertheless, sedated permit activity may be reflecting lackluster job growth that has been a factor in the local economy.

Multifamily Permits 

But what about multifamily permits? Multifamily activity is so sporadic from month to month, it's difficult to see much from monthly data, but with the end of 2015, we now have annual data for 2015. Looking at the year as a whole, we find that 2015's multifamily-family permit total was the lowest recorded since 2012, and is thus at a four-year low:

2015's multifamily development appears to come from a single project.

Not surprisingly, we also see that the average rent in Colorado Springs has been heading upward in recent quarters as little growth in new supply leads to a squeeze on existing housing supply. A lack of solid growth in single-family construction will contribute to this as well.

There are no dramatic trends to identify here, although it does not appear that the Colorado Springs economy is something we would call "robust." For now, the housing economy in the region shows signs of holding steady, although continued declines in job growth growth will lead to declines for housing demand in the region.

(All permit data is from the US Dept. of Commerce.)

Sunday, February 21, 2016

Northern Colorado job growth holds steady


Along with the Denver area, Northern Colorado — i.e., the Greeley and Ft Collins metro areas — has long been one of the more economically robust parts of the state. This has held true since the end of the 2008-2009 recession, with significant job growth in both metro areas.

Historically, Ft Collins has tended to see more growth than Greeley, but thanks to recent growth in oil jobs, Greeley has experienced very large growth levels.

During December 2015, payroll jobs grew 3.6 percent over December 2014, with 5,400 jobs added. During November 2015, payroll jobs grew 3.1 percent, or 4,600 jobs, year over year.  I n general, job growth appears to be holding steady in the Fort Collins metro area (which includes Loveland):


In fact, job growth in the Ft. Collins area has outpaced the last expansion from 2003 to 2007, when job growth hovered around 2 percent.

Meanwhile, in Greeley, job growth reached very high levels, topping out at 9.7 percent during July of 2014. Across Colorado, job growth rates have tended to come in below five percent over the past 20 years, so the job growth rates over 7 percent in Greeley during 2014 and early 2015 do show remarkable growth in employment in the region.

Much of this growth was due to the growth of oil extraction jobs in the region, and not surprisingly, we have seen that growth taper off as the price of oil has fallen quickly over the past year. Nevertheless, with job growth rates still near four percent, it would premature to say that job growth in the Greeley area is looking to disappear.

During December 2015, the year-over-year increase in payroll employment was 3.7 percent, or 3,800 jobs. During November 2015, YOY job growth was 3.8 percent, or 3,900 jobs:



Clearly, a decline in the demand for oil jobs has affected the region, but it's not clear just how large of an impact this will have.

Data source: Data comes from the BLS's establishment survey which features payroll employment, and thus measures the number of jobs in the region. This is not to be confused with the Household Survey that measures number of employed persons.

(All employment data is from the Bureau of Labor Statistics. These numbers are from the "Establishment Survey.")

Saturday, February 20, 2016

After slow recovery, job growth fading again in Colorado Springs


A look at the unemployment rate in Colorado Springs suggests that things are going swimmingly. In fact, they're back to the old boom levels below five percent. During December 2015, the unemployment rate, was at four percent which was down from 5.1 percent during December of 2014:


The last time unemployment rates were generally this low was back during 2007, before the 2008 financial crisis and during the last boom.

The problem with the unemployment rate, though, is that it is a function of both labor force size and employment. That is, if people give up looking for work, leave town, settle for a part time job at a low wage, decide to live on student loans, or retire early, all these things can reduce the unemployment rate, even in the absence of any job growth.

If we look at payroll job growth, however (from the Establishment survey) we find that job growth has been slowing and has been in a downward trend for the past ten months.

During December 2015, payroll employment growth was at 0.8 percent, which was down by about half from the previous December's growth rate of 1.5 percent. In other words, December's employment was up by a mere 2,100 jobs, year over year. A year earlier, durign December 2014, job growth had been up by 4,100 jobs, year over year:



Moreover, job growth has never returned to the sort of job growth we saw before 2008, and it has taken seven years for total employment in Colorado Springs to get back to where it had been before the 2008 crisis. This next graph shows how many months went by before employment returned to previous peak levels. It begins with June 2007 as month 1, and then proceed to the right as each month passes with total employment below the peak level. You can see that employment finally returns to its peak level at the  85th month (more than seven years), which was December 2014. Since then, employment has continued above the old peak level:

This recovery time, by the way, was 26 months (or more than two years) longer than what was needed to recover all lost jobs following the dot-com bust in 2001. In this case, jobs peaked during June of 2001 and finally recovered during May of 2006:


(All employment data is from the Bureau of Labor Statistics. Payroll numbers are from the "Establishment Survey" and unemployment percentages are from the "Household Survey.")