With inflation finally slowing, interest rate cuts on the horizon and the stock market at or near record highs, the economic picture seems to be brightening.

It certainly has for Nick Sovis, a software engineer and deputy program manager for Colorado Springs defense contractor Delta Solutions & Strategies.

“My wife and I have both gotten promotions and raises,” he said. “We bought a new house, and our first child is due in February. We will have reduced income while she is on maternity leave, but we have our entire budget planned for the next six months accounting for that.”

Sovis sees the economy on an upward path, but worries that global issues, such as the conflicts in the Middle East and Ukraine, could slow that progress at home.

“If nothing happens,” he says, “I expect the economy will get better.”

Experts who follow Colorado’s economy share that optimism to an extent, but still see plenty of headwinds ahead.

Here is what four economists had to say about the economy in the new year:

Gary Horvath of Broomfield-based Colorado Business and Economic Research

Horvath is the only one of the four that sees a recession as a possibility. Though a recession “keeps getting pushed back” later in the calendar, it could still happen, he says. And even if the economy dodges a recession, he believes growth will slow in the first half of this year.

Much of the job growth during the past year or so came from the lower-paying government, tourism and restaurant sectors as they continued to recover from the COVID-19 pandemic. Those sectors have recovered the jobs lost during the pandemic, and as a result Horvath expects job growth in those sectors to slow.

He expects Colorado’s economy to improve during the second half of the year, however, when the Federal Reserve is likely to begin cutting interest rates as long as inflation remains in check. Lower rates will help the housing market and auto industry recover and generate economic growth rather than be a drag on the state and national economies, he said.

Horvath expects job growth in Colorado Springs and Fort Collins to be stronger than the rest of the state and nation, based on quarterly employment data that reflects much faster job growth in those two cities last year than monthly surveys by the U.S. Bureau of Labor Statistics have indicated.

Much of the recent job growth in Colorado Springs has come from defense contractors and the semiconductor industry — 10 such companies announced expansion plans in late 2022 and 2023 that will create more than 3,000 jobs during the next several years. The jobs pay wages above the area’s average wage and are expected to trigger additional job growth in the rest of the economy as spending by new hires creates jobs at retailers, restaurants and other businesses.

Tatiana Bailey, executive director of Data-Driven Economic Strategies in Colorado Springs

While Bailey doesn’t expect the local economy to fall into a recession this year, she does expect economic growth to slow as consumers exhaust savings padded by government stimulus checks during the pandemic and with their paychecks still strained by higher prices from inflation. She also is concerned local employers will have trouble finding qualified workers to hire amid a worsening labor shortage, thus reducing job and income growth.

Data from 2022 shows economic growth in the Colorado Springs area slowed to less than 1% from 5.3% in 2021 — about half the growth rate of the state and national economies.

Bailey believes growth slowed as a result of declines in the housing and financial industries, triggered by higher interest rates combined with a long-term drop in the working-age population. On top of that, a rising cost of living has discouraged some workers from moving to Colorado Springs.

Bailey expects the tight local labor market to continue to be a drag on the Springs economy.

“Businesses are struggling to fill openings. The number of job openings is highly indicative of a tight labor market,” Bailey said. “Businesses can’t get the people they want because they can’t find workers and they miss out on revenue growth. Because the cost of living is so expensive here, Colorado Springs is not attracting people at the rate it has in the past — population growth is slowing statewide. How do you sustain job growth without population growth?”

Bailey sees commercial real estate, especially in the area of office buildings, as a threat to economic growth nationwide, starting as soon as next year.

Office vacancies have surged since the pandemic as more employees work remotely at least part of their workweek. That might eventually result in more loan delinquencies and defaults as businesses reduce the amount of office space they are leasing. Higher delinquencies and defaults will likely prompt lenders to tighten lending for new projects, Bailey said.

Bill Craighead, director of the University of Colorado at Colorado Springs Economic Forum

Craighead believes that a tight labor market and higher interest rates will combine to slow economic growth this year. The higher rates resulting from the Federal Reserve’s war on inflation have had a bigger impact in Colorado Springs, he said, because rapid population growth in past years expanded the share of the local economy generated by development, homebuilding and home sales; those areas are now slumping as the higher rates have led to higher mortgage rates and construction costs, while in-migration has slipped.

“You can see that impact in the sales tax collections — building materials, furniture, appliances and other housing-related categories are dragging down the overall total. That has more of an impact in Colorado Springs because those categories are usually growing,” Craighead said.

Like Bailey, he expects job growth to slow as finding workers becomes more difficult for many employers. Craighead also shares Bailey’s concern about higher delinquencies and defaults on commercial real estate loans, which he said could reduce credit availability for business expansion.

“I don’t think higher rates have fully played out in the construction and development industry. There is a high amount of corporate debt that will need to be refinanced this year, and that could cause more defaults and bankruptcies that could impact the financial system and credit availability,” Craighead said.

“This will play out slowly as leases come up for renewal and will have the most impact on those seeking credit to develop new projects.”

Craighead said he is optimistic, however, that the local economy will avoid a recession; most recent national economic forecasts have been revised upward as the Federal Reserve has signaled the central bank is unlikely to further raise interest rates and instead start cutting them.

“Almost all the (recent) inflation data has been encouraging. Consumers are still feeling the impact of previous inflation, but going forward I doubt that when we look at the data a year from now, we will be talking much about inflation,” he said.

Ryan Gedney, senior economist for the Colorado Department of Labor and Employment

Gedney expects job growth statewide to continue to slow this year to 1.4% from the booming levels of 2022, when Colorado’s economy was recovering from the pandemic. Some of the slowdown will be triggered by fewer people moving to Colorado, but he still expects the state’s job growth to remain above the national average.

Job growth in Colorado Springs is expected to remain stronger than the statewide average, driven by continued expansions of the city’s defense contracting and technology industries, Gedney said.