Quick links: Housing and energy prices climb | Rent inflation | How Denver compares to other metros | Record 2nd quarter for startups | Trucking layoffs | Take the reader poll
Prices continue to climb in the U.S., but few regions saw inflation grow faster than in Denver, which posted an annual inflation rate of 4.7% in July, according to the Consumer Price Index.
The Denver metro had the second highest rate next to Tampa, Florida, which was at 5.9%. The U.S., by comparison, was 3.2%, the same as New York’s. Los Angeles landed at 2.7% from a year ago, Hawaii at 2.1%, and Washington, D.C.’s hit 1.8%.
At least Denver’s rate is dropping, said Richard Wobbekind, a senior economist and faculty director of the Business Research Division at the University of Colorado. It’s fallen from 5.1% in May and 5.7% in March.
“The trend is definitely in the right direction,” Wobbekind said Thursday during a news conference. “Hopefully we are going to see some continued trend downward in some of the core inflation areas.”
With the national inflation rate still more than a point above the 2% desired by the Federal Reserve, interest rates are likely to remain high. And that’ll continue to challenge industries that are sensitive to interest rate changes, like construction, housing and the financial sector.
“Getting that additional (percentage point) is going to be a tough road and that’s going to keep these interest rates elevated for a longer period of time. I think the higher interest rate environment is here to stay, at least for the foreseeable future,” Wobbekind said. “We don’t see the inflation rate coming down under that 3% significantly until next year.”
Not all inflation is created equal
In Colorado, blame July’s inflation on higher energy and housing costs. Household energy services, which includes electricity and natural gas, hit particularly hard. Those costs grew 15.4% in a year, even as the same category nationwide fell 1.1% due to a 13.7% drop in the cost of natural gas.
The cost of shelter continues to be an issue in Denver, too. While housing costs rose less than energy, July inflation was at 10.4% for renters and 9.5% for owners, as part of the Bureau of Labor Statistics calculation called the “owners’ equivalent of rent.” (The U.S. shelter inflation rate was 7.7% in July.)
In a typical year, the change in owners’ equivalent in rent is usually around 1%, said Julie Percival, a regional economist at the Bureau of Labor Statistics who tracks the Mountain Plains region.
And when shelter makes up 30% of what consumers spend as part of CPI, any increase can eat heavily into household budgets and have more impact than, for example, a gallon of gas increasing.
There may be a silver lining for renters here, said Bill Craighead, the new program director for the University of Colorado Colorado Springs Economic Forum. Rent inflation is playing catchup from the incredible increases landlords levied on tenants in the past year.
“Since leases typically renew every 12 months, when there is an increase in rents, it only gradually affects the average rent paid,” Craighead said in an email. “This means that rent changes drive a lot of the inflation calculation but they do so with a lag. That is, we’re seeing the effects of rent increases in 2022 still affecting the data now.”
According to rent-tracking site ApartmentList, rents in Colorado Springs are down 3.9%, compared with a year ago. Denver’s are down 1.1% while the state’s is essentially flat, dropping 0.2%. Some of the double-digit rent increases were landlords catching up because they couldn’t raise rents in the first year of the pandemic.
Knowing the cycle of rents and how the BLS measures the cost of housing for homeowners and renters, Craighead feels the worst of inflation is behind us because “that leveling off in rents will start to pull inflation down over time,” he added. “That’s one reason I’m pretty optimistic inflation will keep coming down.”
➔ Gas prices, by the way, fell almost 20% in July from a year ago, which contributed to Colorado’s inflation slowing down. As of Friday, however, a gallon of gas in Colorado was up an average of 18 cents in the past month, to $3.97, according to AAA’s Gas Tracker.
Comparing Denver: Food, eating out and recreating
Few items in the average Denverite’s budget saw a decline in costs, but there were a handful: Meat and eggs, down 1.3%; clothing, down 0.9%; used cars and trucks, down 6.2%; and gasoline for one’s car, down 18.3%. Most of those also fell nationwide.
But food prices continue to rise in Denver and the U.S. Eating at home cost 4.2% more than a year ago. But eating out cost even more, up 7.8%.
It’s probably not a surprise to anyone that restaurant menu prices have gone up. Restaurants, like many businesses in the service sector, faced the double whammy of a labor shortage and rising wages in the past two years. While such trends benefit workers, that obviously impacts a restaurant’s bottomline and translates into higher menu prices.
According to the National Restaurant Association, menu prices are up 7.1% nationwide in a year as of July, with the South leading the increase at 7.4%. Denver’s rate, of course, was higher, at 7.8%.
But other metro areas saw even greater inflation in menu prices, as well as other expenses measured by CPI. Here are a few more categories we compared from the latest CPI data:
Take the poll
Prices continue to rise in Denver and Colorado but not as fast as they were earlier this year or last year. Some folks have even received a nice raise to offset inflation. How about you? Take the What’s Working reader poll and help us get better informed about our community.
Colorado jobs, startups and dissolutions
What continues to keep the state’s economy chugging along are the jobs. Employers are still hiring even if they’re not hiring as much as they were last year.
“Colorado recorded the most jobs (added) in a single year and 2022 and there are a lot of very positive signs for the state,” said Wobbekind, from CU’s Leeds School of Business. “The 4.1% rate of growth last year was the fastest rate of jobs added since 1997. … And while we are above the average of recovery since the pandemic, there’s clearly signs of the state slowing down.”
Job growth in June slowed to 1.5%, ranking Colorado in the bottom quarter of states for growth (it’s usually in the top 10). But the state’s unemployment rate is at 2.8%, or where it was in late 2019. Wobbekind theorized that there’s a supply issue, not lack of demand, because federal data shows that Colorado still has a lot of job openings compared to how many people are available to work.
“We have the largest workforce in our history and the fourth largest labor force participation rate. All of those things suggest that we just don’t have more bodies to fill some of these jobs at this particular point in time. That’s why job growth is slower,” he said.
He predicted that Colorado’s job growth will be 1.8% this year.
Secretary of State Jena Griswold, who also shared data showing the number of new companies starting up was at a record for a second quarter while the number shutting down was flat, cited housing affordability issues as a factor in why there may not be enough workers. Openings that are getting filled may “very well be the second or third jobs for folks,” she said.
“Colorado still has major affordability issues. When we’re talking about a shortage of actual workers, not jobs, people will remain or move to Colorado if they can afford to do so. Living here is incredibly expensive,” said Griswold, who criticized high interest rates because of the impact on students trying to pay off their educational loans.
Perhaps that’s contributing to why new businesses continued to grow in the second quarter in Colorado, even after a discount that dropped business filing fees to $1 ended in May. While there’s no data available on the demographics of new startups in the state, folks may still be starting something new to earn a little extra income. It could also be folks who retired early during the pandemic and want to get back into the workforce, Wobbekind said.
“I’ve actually personally met a couple of people who were in that category. In the last couple of weeks, they told me that, ‘I sat out for a while but I’m too young to be sitting out for a long period of time. So I’m thinking about starting a consulting business or this or that,’ he said. “Historically, we’ve seen that entrepreneurial activity usually picks up really strongly when you have a lot of layoffs and people are out of the workforce. So it is a bit of a disconnect.”
Other working bits
➔ So long Yellow. The trucking company filed for bankruptcy on Sunday and shut down regular operations, leaving at least 22,000 workers out of work. In Colorado, 310 Yellow employees were let go, according to Worker Adjustment and Retraining Notification, or WARN notice Yellow Corp. filed with the state’s labor department. In a letter, the company said the sudden job cuts were “unforeseeable business circumstances.” The Wall Street Journal reported that the company struggled with large debt accumulated in mergers and acquisitions, a challenging relationship with its unionized drivers and a $700 million COVID-19 relief loan still unpaid to the U.S. government. >> WSJ, WARN
- FedEx closing Colorado Springs facility. Also in new WARN notices this week, FedEx informed the state that it plans to close a shipping facility at 5010 Centennial Blvd. in Colorado Springs by Nov. 3. The closure means 94 workers will lose their jobs, though some will move to the FedEx location on Troy Hill Road. >> View WARN notice
- UPS gigs are HOT! After reports that United Parcel Service agreed to pay unionized full-time drivers $170,000 by the end of the new five-year contract (up from $145,000), online job site Indeed said searches for “UPS” or “United Parcel Service” jumped 50%, while “UPS driver jobs near me” has been a top trending search on Google. >> Bloomberg News
➔ A trend toward hiring temp workers? According to its latest survey, small business market researcher Alignable found that owners are hiring full-time workers less, down 25% in July compared to June. But they’re hiring temporary and part-time workers more, according to the survey. Colorado led the pack, with 49% of respondents hiring temp workers. Such workers are a big part of service-oriented businesses like restaurants and retailers, but this is happening because “owners (are) feeling more nervous about the economy, as well as their ability to generate more revenues,” said Chuck Casto, a spokesman for the small business market researcher. And it’s still a tight labor market so they’re still having a hard time finding that “perfect, full-time” employee, 46% of Colorado respondents said. More Colorado data:
- 22% of Colorado small businesses founded in March 2020 or later said they are “making as much or more than they did monthly this time last year.” Comparably, 35% of companies founded before COVID felt the same. The national average was 38% of restaurants founded before the pandemic.
- 41% of Colorado small businesses said climbing interest rates is backfiring, with 54% believing recession is on the horizon (compared to an average of 50% nationwide.)
- 67% are paying higher rents from six months ago in Colorado, compared with 55% nationwide.
>> See Alignable’s survey
Thanks for sticking with me for this week’s report. As always, share your 2 cents on how the economy is keeping you down or helping you up at cosun.co/heyww. ~ tamara
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What’s Working is a Colorado Sun column about surviving in today’s economy. Email [email protected] with stories, tips or questions. Read the archive, ask a question at cosun.co/heyww and don’t miss the next one by signing up at coloradosun.com/getww.