Saturday, June 18, 2016

Denver and Colorado Springs are cities where the "American dream" is "possible"

In this analysis from, the analysts conclude that while the "American dream" is no longer possible in many coastal cities, it's still possible in Denver and Colorado Springs. Colorado Springs is considerably more affordable than Denver in this analysis. I'll let you have a look on your own.

The least affordable places, by far, are New York City and San Francisco:

Thursday, June 16, 2016

Homicide rate in Colorado near 50-year low

There's been a lot of talk on homicide in the United States recently, so I thought I'd add in a little factual information about the picture in Colorado.

As I've noted on several topics before, it rarely makes sense to speak of a nationwide statistic when discussing the United States. That may make sense for Finland where nearly the entire population of five million lives within one or two metro areas, but it makes no sense for a country as large and diverse as the United States.

Colorado is the size of several smaller European countries (including Norway and Finland) and it makes more sense to look at the US as a collection of political entities, rather than one. After all, no one lives "in the United States." People don't even live "in Colorado." People tend to live, work, and play within a single metropolitan area, most of the time.

In a future article, I may take a look at homicide rates separated out by metro areas in Colorado. But, for now, let's look at the state overall.

The graph shows the homicide rate in Colorado since 1960, as reported by the FBI:

In 2014, the homicide rate was 2.8 per 100,000. That's up from the 50-year low reached in 2010 (when the rate was 2.5). In fact, the homicide rate in 2010 was the lowest recorded in more than 50 years. The FBI data here does not go back before 1960, but based on national data before 1960, its a good bet that homicide rates in Colorado during the 50s — which was a period of very low homicide rates nationwide — were even lower than today in Colorado.

Since the 1972 peak in Colorado, when the homicide rate was 8.1 per 100,000, the homicide rate has fallen 65 percent. Since 1981, when the rate again went up to an unusually high level of 8.0 per 100,000, the rate has fallen by 64 percent.

Most of the public, however, is unaware that homicide rates have been declining in Colorado and nationwide over the past 20 years. The Pew Research Center has noted this in terms of national statistics.  The Colorado trend is a little different from the national trend, and you will notice the national homicide rate tends to be higher than the Colorado rate:

This data shows trends over time. But how does Colorado compare to other states right now?

In this map, we can see that Colorado is generally a low-homicide state, and similar to numerous other states in the northern US and provinces in central Canada:

Here's another graph that shows where Colorado falls:

The red bars are Canadian provinces, and the blue bars are US states. This is all based on the most recent data from the FBI and the Canadian government.

If you're interested in comparisons to Mexican state-by-state data, I completed an earlier analysis on that here.

(The rates were calculated using homicide totals from FBI sources, which I then adjusted to Colorado resident population for each year.)

National Job Growth Stalls, Fed Keeps Interest Rates Low

There is no doubt that there is a boom going on out there. Unfortunately, for much of the country, it's largely just a boom in asset prices, and not in job growth. That means real incomes are going down for people who don't make a sizable amount of income off assets they own.

In other words, for most people, the cost of living is going up while the job situation is stagnating. Colorado has tended to do better than many areas of the country in recent years, and the national data tends to reflect a more negative reality.

Yesterday, the Fed admitted as much when the FOMC voted to take no action on the target federal funds rate announcing "Against this backdrop [of poor economic data], the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent." (See the official statement, here.)

The move signals a surrender on the Fed's part in regards to earlier claims that it would gradually raise interest rates throughout 2016 back to more "normal rates" which haven't been seen since 2009.
With an economic situation that doesn't look to improve significantly this year, the Fed doesn't have much on which to justify any rate hikes (from the Fed's perspective). So, for the foreseeable future, we're likely to see an ongoing interest rate trend that looks like this:

But who can be surprised? When the new jobs data came out for May, earlier this month, even the usual media sources were forced to admit job growth was a disappointment. The administration has been crowing about how the unemployment rate has gone down, but unemployment rates can go down without any real job growth, and the Fed summed it up with yesterday's announcement when it said: "Although the unemployment rate has declined, job gains have diminished."

In fact, as I point out here, job growth was at a 28-month low in May 2015, and the April-May job gains were the worst we've seen since 2009, in the midst of the recession.

This comes after months of being told how excellent the job situation is by both the administration at the media. However, the job growth in the current recovery is the worst we've seen in numerous cycles. Moreover, much of the usually-cited jobs data does not take into account the many workers who are involuntarily employed part time, due to employer cutbacks in hours and declines in the need for workers as the economy slows:

The Fed has become especially concerned about job growth in recent months, but while we were being told how swell everything was the part six years or so, it's apparent that the Fed never thought so. Had the economic data actually been good beyond the often-reported headline numbers, then the Fed would have actually raised the target rate. As it is, the Fed was always too afraid to raise rates, since it has recognized all along that the current recovery has been lackluster at best.

The economy we have, though, means ongoing attempts at monetary and fiscal stimulus, and a continuation of ultra-low interest rate policy, currently in its seventh year.

For reference, here's a look back at the terget fed funds rate going back to 1992:

Friday, June 3, 2016

US Job Growth Rate Hits 27-Month Low

The Bureau of Labor Statistics released new employment data today, and nonfarm payroll employment increased in May be the smallest amount seen in 28 months.

For May 2016, there were 144,592,000 payroll jobs in the US, which was up 1.6 percent, or 2.3 million jobs, from May 2015. (These are all not-seasonally-adjusted numbers.)

That's the smallest year-over-year increase reported since February 2014, when payroll jobs increased by 1.57 percent. The largest year-over-year increase in recent years was reported during July 2015, when it was up 2.18 percent:

Since July 2015, the general trend in growth has been down, and at 1.6 percent remains well below where growth was during most of the 1990s.

As I don't like to use the seasonally adjusted numbers — which add an additional layer of needless manipulation — I also like to compare job growth from the same time of year across several years.
When we do this, we find that the job growth from April to May during 2016 was the lowest April-May growth total since 2009:

From April to May 2016, there were 651,000 new jobs added, which is a significant drop from the same period of last year when 947,000 jobs were added. Over the past decade, 2016 in this measure beats only 2008 and 2009, both of which were years of economic decline. (These numbers are not comparable to the seasonally adjusted numbers.)

In other words, May 2016 was the weakest May for job growth in 8 years.
The reaction in the press to the latest jobs numbers has been one in which most everyone has been forced to acknowledge that the jobs report is a disappointment. However, spokesmen for the federal government have been hard at work spinning the numbers. Secretary of Labor Tom Perez, for example, attempted to blame everything on the Verizon strike. That's a nice try, but the strike doesn't explain the obvious decline in the year-over-year numbers.  The strike might explain why the May numbers dropped off as much as they did, but it can't explain the trend. Also, it's a bit of a stretch to blame all, or even most, of the big drop from April-May 2015 to April-May 2016 on the Verizon strike.

Perez tried some other, even less convincing, claims as well, saying that the US's insufficient mandates on paid family leave means that fewer women are entering the work force, and thus pushing down jobs totals. Again, how on earth does that explain why May's numbers are especially bad. The laws on family leave haven't changed much on recent years, so why is it now suddenly important? The answer is it's not — except as something to deflect blame on bad economic data.
In any case, the overall trend should not be a big surprise. The current recovery has always been week, and has been heavily dependent on an activist central bank and low interest rates. In recent quarters, the Fed has finally been backed into a corner and has become hawkish. Realizing that more rate cuts are unlikely to come any time soon, the economy is not receiving the usual Fed-manufactured stimulus that investors and employers have become accustomed to. With the Fed talking about the need to raise rates, who can be surprised that the "recovery" is withering?  

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 "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.