Economist predicts dragging recovery

A year ago, Colorado Springs economist Fred Crowley addressed members of the Pikes Peak Association of Realtors and warned that the nation was on the brink of a recession.

On Friday, standing in front of the same group almost a year to the day later and going over many of the same economic indicators, Crowley told real estate agents that the question now is how long the recession will last. Much of this year, he said, will be bleak.

"Very realistically, it's six to nine months before we economically hit bottom," Crowley said after speaking to about 125 association members at the downtown Clarion Hotel.

"We're going to be going down at a much slower rate, I think. Recovery is not going to be a spike. It's going to be dragging, from all indications."

Crowley, a senior economist at the Southern Colorado Economic Forum at the University of Colorado at Colorado Springs, had some grim predictions:

• Unemployment nationally will rise to 8 percent, and could climb as high as 9 percent.

On Friday, the U.S. Department of Labor announced that the nation's unemployment rate had reached a 16-year high of 7.2 percent. Locally, unemployment won't reach national levels, thanks to jobs created by thousands of troops scheduled to arrive this year at Fort Carson.

• Automaker Chrysler likely will go out of business or be sold off in pieces, while General Motors remains a candidate for Chapter 11 bankruptcy. Locally, expect at least one dealership to fold.

• Empty storefronts and offices will become more common in the Springs; the announcement this week that Macy's will shutter its Citadel mall store is another example of recent retail closings. But smaller stores, not just big boxes, will disappear, too.

Some owners of commercial property will fall into bankruptcy, and others will have to lower their asking rents.

• The nation's gross domestic product - a measure of economic activity - will decline through the first half of the year, and might remain negative through the third quarter; federal budget deficits will break records; and inflation might lead to rising interest rates later in the year.

Not everything is grim, Crowley said.

Local home sales and new construction fell sharply in 2008; home prices dropped, too, but a federal agency that measures prices showed that the Springs had the second-highest increase in prices among major Colorado cities over the past five years, a 15.6 percent gain.

Mortgage rates have plunged to 5 percent or less for 30-year, fixed-rate loans, which means a homeowner refinancing boom could be coming, Crowley said. And based on household income figures and the current cost of housing, homeowners have a much better chance to afford a home now than two years ago, he said.

Area foreclosures broke a record in 2008 for the second straight year, but the foreclosure problem might not be as bad as the last housing downturn in the late 1980s, Crowley said. Currently, there are about 25 foreclosures for every 1,000 households, he said; 20 years ago, there were about 32 foreclosures per 1,000 households, a higher rate because there weren't as many households.

Also, nearly 5,000 Fort Carson troops, and an estimated 9,100 of their dependents, are scheduled to arrive at the post on Colorado Springs' south side this year, Crowley said.

By 2013, the arrivals will total about 28,000, he said.

The additional soldiers and family members will boost the economy, although Crowley cautioned that the influx can't reinvigorate the local economy by itself. Based on a study he did for the city of Fountain, Crowley said Fort Carson soldiers who live off post will pump up area housing, but soldiers typically wait three to five years before buying a home.

Also, more troops will trigger job growth, but the largest number of new jobs to be created will be lower-paid positions at restaurants and bars, Crowley predicted.

"To me, Fort Carson is going to be the stabilizing influence in the community," Crowley said. But because it doesn't create enough primary jobs, or those that attract wealth into the community, "it's not the solution," he added. "What it is, is a life raft. What we really need to grow the economy, though, are some very serious jobs in the primary sectors. We've lost those jobs. We have fewer today than we did in 2001."

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