Colorado’s economic growth is poised to slow in 2023 as inflation and rising interest rates keep a lid on business activity, though it isn’t expected to stall out completely, according to economists at the University of Colorado’s Leeds School of Business.
The state is expected to add about 57,000 jobs next year, compared with a gain of more than 120,000 jobs this year, CU economists said in a newly released business outlook report. The two largest sectors — professional and business services, and trade, transportation and utilities — are expected to add a combined 26,700 jobs in 2023, according to the report.
The only two sectors that are forecast to lose jobs next year are construction and financial services, both of which are highly sensitive to changes in interest rates – especially mortgage rates.
“We’re seeing a direct and immediate impact on the financial activities sector and the construction sector,” Brian Lewandowski, executive director of CU’s Leeds research division, said in an interview.
Higher mortgage rates make it more expensive to buy a home, tamping demand for new houses. On top of that, mortgage companies are taking a big hit because homeowners stopped refinancing their existing loans, which had been a booming part of the business when interest rates were low. Last month, American Financing Corp., known for its commercials featuring former Denver Broncos quarterback Peyton Manning, announced plans to lay off more than half of the employees at its Aurora headquarters.
The Federal Reserve started rapidly raising interest rates early this year to try to curb inflation after it reached a 40-year high. There are signs price increases are starting to moderate, but the central bank is widely expected to continue raising rates next year.
The business outlook has been cloudy both in Colorado and across the U.S. for the past six months. Some signals like declining gross domestic product earlier in the year point to a possible recession. But the job market hasn’t wavered, making it difficult to predict where the economy is headed next year.
Whether or not consumer spending holds up will be the determining factor, according to Lewandowski. Stubborn inflation has been chipping away at paychecks, but people are dipping into savings or using credit cards to keep spending rather than pulling back, he said.
“That’s how we’ve been thinking about it — How long can the consumer really sustain this?” Lewandowski said.
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