Colorado economy enters normalization phase, BMO outlook says

For years, Colorado’s economy felt like a sprint. Today, it looks more like a steady, disciplined marathon.

The Centennial State is shifting from a period of post-pandemic growth into a “normalization phase,” according to BMO’s newly released Colorado Business Outlook report.

The data present a striking contrast.

On one hand, Colorado’s gross domestic product (GDP) jumped to an annualized rate of 4.6% in the third quarter last year, outperforming the national average of 4.4%.

On the other hand, personal income growth has slowed to a crawl at 2.2%, placing Colorado in the bottom quintile of all states.

“Successful businesses in this unbalanced and uncertain economic environment will need to remain focused on cost containment, innovation and productivity-enhancing investments,” said Scott Anderson, BMO’s chief U.S. economist.

Anderson suggests that companies diversify their customer bases toward higher-income households that are better insulated from inflation shocks and debt problems.

“As these businesses become more productive, their profitability will improve, and they can pass along a portion of the gains onto their existing workforces,” he said.

Technology has shifted from what the report describes as “aspirational spending” to a survival tool. Companies are aggressively deploying automation and data tools not just to grow but to manage labor constraints and protect margins.

As businesses become more efficient, the hope is that they can pass gains back to a workforce struggling with the state’s high cost of living.

The labor illusion

On paper, Colorado’s labor market looks tranquil, with an unemployment rate of 3.8% — well below the national average of 4.4% and the 4.8% the state had in May.

However, Anderson warns of a “coincident collapse” in labor supply. Labor force growth, which was 2% in 2023, plummeted to negative 0.6% by December.

“We are in an unusual labor market environment where labor demand and labor supply are both slumping at the same time, giving the illusion of tranquility,” Anderson said.

While sectors like healthcare, information and hospitality continue to add jobs, thousands of positions are being shed in construction, manufacturing and finance.

Housing and the talent war

Housing affordability remains a major problem. While residential building permits remain “moribund,” according to the report, there is a silver lining for the tech sector. Because other hubs like Silicon Valley face even more dire affordability crises, Colorado remains a relative value proposition for specialized technical talent.

“We expect affordability in the state to improve over time as home price growth slows, real incomes rise and mortgage rates slowly come down,” Anderson said.

For now, the Denver-Boulder corridor’s tech ecosystem continues to attract STEM talent, even as the broader Denver metro area sees nearly flat job growth.

Downtown Denver’s tentative step forward

In the urban core, the outlook for Denver’s central business district is showing “tentative signs of stabilization,” Anderson said.

While older buildings continue to struggle, vacancy rates appear to be peaking and sublease space is shrinking as return-to-office policies take hold and the pipeline of new construction remains limited.

The bottom line

Colorado remains a high-performance economy, but its future success hinges on adaptability. Businesses that prioritize cash flow, practical tech integration and a focus on high-value talent will be best positioned to capture opportunity when the uncertainty levels out.