Real Estate & Construction  March 31, 2006

As construction slows, local economy weakens

The Northern Colorado Business Report Index of Leading Indicators is very erratic at the present time because of the lingering impacts of the federal bankruptcy legislation that took effect last October. It’s an example of how Congress can affect the economy.

Late 1997 (see the spike on the nearby Growth Rate graph) is an example of how local governments can affect our economy. In late 1997, Larimer and Weld Counties and Estes Park announced new growth strategies and builders pulled a large number of new building permits to beat the new regulations.

But as we look beyond the erratic movement of the growth rate because of government effects, there are serious signs of weakening in our local economy.

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Employment continues to grow steadily. Employment growth was a little weak last summer but seems to have recovered in the new year. We are, however, trading growth in higher income jobs that we enjoyed in the 1990s for growth in lower income jobs. The service sector in the U.S. economy is growing strongly and that effect is mirrored in our local economy. The unemployment rate has bounced back up as potential employees have entered the work force in hopes of finding a job.

The construction industry drives the local economy. A nearby graph shows that growth in the value of construction being put into place is leveling out. While 2004 was a very strong year for construction in Northern Colorado, 2005 was good but far weaker than 2004; 2006 is likely to be much like 2005, perhaps even a little weaker as interest rates continue to climb and construction material costs escalate further.

The number of single-family detached housing permits issued in December and January in Northern Colorado was the lowest since 1997. We have lost almost 10 years of momentum in the detached single-family home sector. This does not bode well for suppliers to that industry, including new home furnishings.

The value of these permits continues to increase nicely because of escalating costs and larger homes. The growth index trend line has turned down, its first decrease year-over-year since before 1990.

Growth in motor vehicle registrations is slowing as new car sales decline, fewer high-paying jobs are created, and interest rate increases slow home refinancing. The trend line for this statistic is the flattest it has been in the 15 years for which I have data. Perhaps highway capacity will have a chance to catch up with increased traffic volume.

New sales tax accounts issued in Northern Colorado continue to decline; they have been declining since 2003. New entrepreneurs are showing much less confidence in our economy’s ability to support new retail businesses. The number of new accounts being issued is now lower than at any time since 1998.

Retail spending continues to grow because of inflation, relatively easy money from home refinancing and employment growth. The 2005 Christmas season was the seventh in a row at much higher spending levels than in the 1990s. We had seven consecutive years in the ’90s of growth, but a lower level than in the years since 2000.

Bankruptcies continue to hold at a much lower level than before the October effective date of the new federal legislation. The monthly numbers have ranged from 20 in November to 44 in February. I don’t think the numbers will hold at this lower level beyond mid-year but our growth rate is benefiting from the year-over-year changes between 2005 and 2006. I think the new legislation has created a new paradigm in the bankruptcy industry and we will have to wait a year or more to determine a new equilibrium.

In summary, there are serious signs of weakening in our local economy as the construction industry catches its breath. The national economy appears strong but has substantial underlying weaknesses. Our national debt continues to grow at an alarming pace and we are increasingly dependent on foreign governments to finance it and keep the dollar strong. This does not appear to be a formula for long-term economic strength.

John W. Green is a regional economist who compiles the Northern Colorado Business Report’s Index of Leading Economic Indicators. Green, a Fort Collins resident, was previously chairman of the University of Northern Colorado economics department.

The Northern Colorado Business Report Index of Leading Indicators is very erratic at the present time because of the lingering impacts of the federal bankruptcy legislation that took effect last October. It’s an example of how Congress can affect the economy.

Late 1997 (see the spike on the nearby Growth Rate graph) is an example of how local governments can affect our economy. In late 1997, Larimer and Weld Counties and Estes Park announced new growth strategies and builders pulled a large number of new building permits to beat the new regulations.

But as we look beyond the erratic movement of…

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