DENVER, Jan. 14 /PRNewswire/ -- At Vectra Bank Colorado's 17th Annual Economic Forecast Breakfast, titled "Up from Here?! Opportunities and Obstacles in 2010," speakers were cautiously optimistic, predicting more job creation, slightly higher home values and stronger global economic growth this year, despite an outlook that includes higher unemployment, possible inflation and significant debt problems for several years.
In what has become an annual tradition after the New Year, Vectra Bank Colorado presented its free economic forecast at the Seawell Grand Ballroom in Downtown Denver to a sell-out crowd of 700. This year's event featured Jeff Thredgold, the event's keynote speaker and corporate economist for Vectra Bank Colorado; George Feiger, CEO, Contango Capital Advisors; and Patricia Silverstein, president, Development Research Partners.
Jeff Thredgold: Reform spending, watch for inflation
The most recent economic recession has been called the "Great Recession," and the speakers emphasized the significance of recent economic challenges. "The recession is over, and growth has returned," said Thredgold. "This has been the most costly, longest hit to the economy since the Great Depression. We need to put common sense in place to prevent its recurrence in five to 10 years."
Thredgold reassured attendees that "we are in a growth process," despite having lost 3.1 million net jobs nationally in 2008 -- the worst since 1945 -- and having lost 4.2 million net jobs in 2009 -- the worst since 2008. "We are looking at positive job gains in 2010, but the unemployment rate will move higher even as we gain jobs," he said, explaining that unemployment figures will rise as people who had given up on job-hunting re-enter the job market.
Thredgold warned that inflationary pressures are in the air. "We are facing a massive challenge with inflation over the next three to four years … or there will be deflation, which is even more challenging." He compared Colorado's and the nation's situation to that of global leaders, such as China, which could see growth up to 14 percent this year.
Additionally, Thredgold called for the U.S. government to rein in spending that has led to a national deficit of $1.4 trillion in 2009, or $160 million every 60 minutes. "Rather than cutting spending, we need to slow down the rate by which we increase our spending. And budgets need to be based on restrained spending, not tax increases," he explained.
George Feiger: Rein in debt, consumption to find balance
George Feiger agreed with Thredgold that the nation faces dangerous debt, and despite his observation that "things are on the mend everywhere," he cautioned attendees that the United States is struggling with unprecedented levels of debt -- 250 percent of the GDP, not including financial debt, or 350 percent of the GDP, including financial debt -- which will have repercussions for at least a decade.
"Consumption is 70 percent of our GDP, which is not normal or sustainable," Feiger said. "Consumers have borrowed and spent, and that won't continue. Boomers are poorer. We are back to where we were in 1996, having lost a decade of savings. Household debt is around 100 percent, and this is not normal. In coming years, the household savings rate will return to 6 percent to 8 percent, and spending will return to around 60 percent [of the GDP]."
Feiger tied this massive debt value to the run-up in the price of housing, which in turn was driven by the availability of credit. "House prices are back to reasonable levels, but debt is still high," he said. This debt has led to a large number of foreclosures, but it has also led to the new phenomenon of "walk-aways:" home owners who simply hand their properties over to the lenders rather than continuing to pay mortgages higher than the value of the homes they cover. The consequences will continue for years, he said, predicting that by 2011, 45 percent to 50 percent of all home owners will be "underwater" -- with homes worth less than their mortgages.
"Housing prices will not recover quickly because of this bubble of debt," he predicted. "The debt bubble also will bring real problems in the debt markets in 2011-2014, when debt needs to roll over. This will be very difficult, and the aftermath is enormous."
The ramifications for businesses, he said, are that companies with strong balance sheets will prosper and will recover more quickly, while companies with poor balance sheets will continue to struggle. To succeed, companies and individual investors need to create a 36-month liquidity plan, aiming for 6 percent to 9 percent return from the equity markets, and actively manage their investments, he suggested. "The economy is recovering, and there are opportunities, but many issues still lie ahead."
Patricia Silverstein: Strive for recovery after 'naught' decade
Silverstein pointed out that 2009 was the first year since 1938 that total personal income declined in Colorado. Retail trade activity is down 11 percent in the Denver-metro area, she said -- a trend that has "huge ramifications because of our dependence on sales tax." For retail businesses, Silverstein said, the question is how strongly consumers will return, although Silverstein does expect consumers to spend a bit more in 2010.
Silverstein also examined the issue of housing in metro Denver. In stark contrast to the typical annual average of 17,000 home building permits, fewer than 4,000 permits were issued in metro Denver in 2009, with perhaps 5,000 anticipated in 2010. Metro Denver foreclosures are anticipated to decline slightly to about 25,700. Colorado currently has the 10th lowest rate of mortgage delinquency in the country. In metro Denver, she noted, prices have been stable over the years, which has helped the region's housing market hold a firmer position, and slight price appreciation (2 percent to 3 percent) is expected this year.
In terms of jobs, Silverstein observed, "The past decade, which has been called the 'ought' decade, should be called the 'naught' decade. The recession has wiped out the Denver-metro area's entire job gain from the past 10 years." Only the industries of education, health care and government added jobs in 2009. In 2010, gains are expected in the fields of education, health care, and professional and business services, which includes temporary employment agencies. In Colorado, the aerospace, bioscience and renewable energy industries continue to build. Vestas, she noted, is building in Colorado and bringing its manufacturers along, putting Colorado on the global map for renewable energy.
For more information about Vectra Bank Colorado or to schedule an interview with Jeff Thredgold, contact Lisa Cutter, (303) 972-6275.
Thredgold creates the monthly Vectra Bank Colorado Small Business Index. The Index tracks business conditions affecting owners and managers of smaller enterprises, a major factor in the Colorado economy.
With assets of $2.45 billion, Vectra Bank Colorado is a proactive, customer-focused organization dedicated to real relationship banking. Part of the Zions Bancorporation (Nasdaq: ZION) family of banks, Vectra serves Colorado's small, middle-market and corporate business clients with 38 locations throughout Colorado and one in Farmington, N.M. The bank's Web site address is www.vectrabank.com.
Lisa Cutter 303-972-6275
SOURCE Vectra Bank Colorado