Colorado’s economy is expected to grow slightly in 2023 — by a little over 1 percent, and inflation is predicted to drop to 4.6 percent according to the December economic forecast from Legislative Council Staff, the state’s nonpartisan fiscal analysts.
The update came as part of the regular quarterly revenue forecast used to craft the state budget.
Even though they aren’t predicting a recession in the near future, economists said it’s possible the state could slip into one after 2023, because the path for continued economic growth is narrow.
“Unforeseen shocks could push the economy into a downturn,” said the forecast report.
The labor market continues to be a bright spot in Colorado’s economy with low unemployment, plentiful job openings, and rising wages. But there are still “notable gaps” for lower-wage jobs that rely on in-person work.
“... child care, nursing and residential care, and public education, for example, all remain below pre-pandemic levels through November 2022.”
However, the economic forecast said rising interest rates are taking a toll on the housing market and stifling business investment.
Jeff Stupak, an economist with Legislative Council Staff said wages in Colorado have effectively stagnated, as rising pay has been undercut by a year of strong inflation. Stupak said families have less savings than before.
“And those are all kind of warning signs for the economy that we should really keep an eye on because so much of our economy is consumer-driven, about 70 percent of total economic activity is from consumer spending,” he said.
The forecast for how much money lawmakers will have available to spend next year has also changed since September, dropping by about a billion dollars because of two ballot measures voters approved in November.
Proposition 121 cut the state income tax rate from 4.55 percent to 4.4 percent, while Prop. 123 requires lawmakers to dedicate a certain amount of tax revenue for affordable housing projects.
"Those downward adjustments are significant, but they ultimately do not result in less space available for your budget because we're over the TABOR limit," Stupak said.
TABOR — the Taxpayer’s Bill of Rights — limits the state budget’s growth to inflation plus population growth and excess revenue must be returned to voters. In recent years, strong tax collections have resulted in large refunds. The TABOR surplus for the fiscal year that starts July 1, 2023, is currently estimated to be around $1.53 billion, about a billion less than the current fiscal year’s surplus.
