Numbers signal slower growth for Northern Colorado

The Northern Colorado Business Report Index of Leading Indicators is signaling slower growth ahead for the Northern Colorado economy.   

The continuing search for a new equilibrium by the bankruptcy statistic is still affecting the regional growth rate, but other statistics are very weak, especially the construction sectors.   The Index fell to 217 in October (bankruptcy effect), a level last seen in February 2000.   It was consistently in the upper 300s in 2004, peaking at 433 in October 2005 as bankruptcy filings rushed to beat the new federal legislation deadline.

The construction sectors have been the most important drivers of our economy for many years.   Health care has stepped in to take up some of the slack and the alternative energy sector shows promise, but the services and retail sectors are not growing fast enough to cover the losses in the construction sectors.   In addition, the construction sector is negatively affecting the retail and service sectors.

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There is increasing speculative activity in the residential housing sector as Weld County’s bankruptcy woes receive national attention and prices fall in other speculative markets such as Portland, Ore.   There is plenty of cash sloshing around looking for a profitable parking place beside the stock market, although it also is setting new highs.

The dollar is reaching new lows against the euro and is weakening versus the yen as money flows out of the United States. I’ve seen forecasts of $1.45 to the euro and the EU central bank is raising its discount rate.   

Now is the time for exporters to redouble their efforts to penetrate or expand their foreign markets, especially in Europe.   Eastern Europe is growing quickly, although not as fast as China and India.

At least the Fed Chairman is not talking about “irrational exuberance,” although maybe he should be.

Employment growth in Northern Colorado was flat during 2005 but caught up with a rush in early 2006. Growth in the late summer was slow as residential construction slowed but September and October have been strong. We’re even seeing some growth in the desirable higher income category, a positive sign for the retail and service sectors.

The unemployment rate is the lowest it’s been since late 2001 but that could be because transient construction workers have moved on to the next booming region as their jobs disappear in Northern Colorado.   There are plenty of ethanol and biofuel plants being built in the Corn Belt.

The total value of construction being put in place in Northern Colorado dropped precipitously in October to its lowest level since 2000.   The value dropped from $218 million in April to $68 million in October.   This decrease will be difficult to recover in the other sectors of our economy.   The number of new single-family detached housing permits issued dropped 53 percent from March to October.   The inventory of foreclosed homes will take several months to work through.

Growth in motor vehicle registrations remains steady. The same is true of retail sales, of which new motor vehicles are a component. There is substantial uncertainty surrounding the Christmas sales season as some economists forecast weaker consumer spending. New car sales are slowing nationally.

The decline in new sales tax accounts being issued appears to be bottoming out, although the trend line is still pointed down.

Total monthly bankruptcies seem to be leveling out at pre-2001 levels and monthly bankruptcies per 1,000 residents are at approximately their 1995 level.   Per capita bankruptcies seem to be seeking equilibrium at about 80 percent of their 1991 monthly average.

Prospects for continuing growth in the Northern Colorado economy are very uncertain.   It appears as if the economy might contract in 2007-08.   Home prices are holding up but perhaps only because of bankruptcy speculation.   Exporters are being presented with international opportunities and the health-care sector continues to expand.

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.