Region can thrive despite the economy of ‘Meh!’
After listening to the recent speech of Janet Yellen, chairwoman of the Federal Reserve Bank, at the New York Economic Club, it was very hard to be enthusiastic. Most financial pundits described the speech as dovish, which means that inflation- and interest-rate increases are both very unlikely. They are unlikely because the economy is not performing that great and the risks facing the U.S. economy are considerable.
The question is why. Given a near zero federal-funds, interest-rate environment and a price at the pump less than $2, both of which should provide tremendous stimulus to the economy, why is the economy limping along at an anemic 2 percent growth rate? And why is Yellen, one of the most influential and, presumably, knowledgeable economists in the world, saying that this might be as good as it gets for some considerable time?
China, Europe, terrorism, regulation, commodities bust and tax policy are all headlines that pundits will point to to explain why the economy isn’t growing at a much faster rate more than five years after the recession. Clearly all of those factors inhibit economic growth. There is another item that Yellen alluded to in her speech that very few pundits jump on, but I think may be the most relevant factor in dampening economic growth, and that is “slack.” Slack in the labor market, specifically.
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An analysis of corporate profits from 2011 to 2015 is insightful. On the aggregate, top-line revenue growth was very modest during that period. Net profits, however, were far more robust. The implication of this is that corporations, again on the aggregate, focused on efficiencies and cost containment in improving their bottom lines and not on investments to increase revenue growth. This has led to a stagnation in wage growth and an underutilization of the labor force. The impact of this is profound on economic consumption and the overall gross domestic product.
In my mind, there are two other reasons why the nation’s GDP is not growing at a rate comparable with previous recoveries — and for those who would like me to get political here, I am sorry to disappoint you. The first of those reasons is technological deflation. I am not sure if that is an actual term or if I just coined it. What I mean is this: If you open up your phone and look at all of your free or $1.99 apps and equate those to a value of products and services you would have paid to accomplish 20 years ago, deflation is staring at you in the face. Take a selfie to remember this moment. Many disruptive technologies are designed to create efficiency and reduce cost and need for high-paying labor, and we are just entering the age of disruption.
The second reason is just pure demographics. As the baby boomer generation takes its chips off the table, becomes more conservative in investments and sells businesses and other assets as part of their retirement plans, there is slack in the economy. The Gen Xers aren’t large enough as a group or wealthy enough to pick up that slack. Gen Xers, those of us unfortunate enough to be born between roughly 1964 and 1980, were disproportionately affected by the Great Recession and now are finding more and more that we are under-educated and under-skilled in the workforce. The college-debt-laden Millennials will provide needed stimulus to the economy, but not until they get fully utilized in the workforce and get a little breathing room from their debt.
The economy in Northern Colorado is very robust, but still is suffering from those same labor-utilization issues. Ask the barista with the Ph.D. who makes your mocha latte in the morning. Or, you might question the nice young lady who opened your account at the bank about how she is putting her MBA to use. In the past 90 days since I have been in Northern Colorado, I have gotten a few calls from younger folks who put my economic, academic credentials to shame that would like to intern with our organization to build out their resumes.
So, the question is not how good the economy in Northern Colorado is, but how really good it could be if we were able to fully utilize one of the youngest and highest-educated workforces in the country. How do we do that? We create better opportunities. Northern Colorado is an incredibly innovative environment, and I have great confidence that many of those opportunities will be created internally. For the remainder, however, we need to tell the story of our regional workforce better than what a 3 percent unemployment rate says to potential outside employers. We need to provide those employers with raw data that indicates the potential utilization of the workforce and not just the current utilization. If we tell the story correctly, primary employers will find their way to Northern Colorado to take advantage of that young, highly educated workforce that is rarer than you may realize.
Andrew Montgomery is chief executive of the Northern Colorado Economic Alliance.
