On the Economy: Growth will slow during new year

The Northern Colorado economy is growing at a pace many would consider to be too fast, probably about 5 percent in 1996. The local economy will continue to grow at a rapid pace in 1997.

But growth, while still strongly positive, will not be as strong as in 1996.

An already low unemployment rate continues to drop, falling from 3.6 percent in September to 3.5 percent in October. However, an unemployment rate of 3.5 percent is probably close to the “natural rate” for a local economy such as ours.

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The “natural rate” is considered to be the healthy component of unemployment – the frictional unemployment – that unemployment due to normal turnover in the labor market, i.e., people who are temporarily between jobs because they are moving, changing occupations, or other similar reasons. This is voluntary unemployment.

Other indicators are still strong and will continue to be positive in 1997. The sale of single-family homes, condos and townhomes is still strongly positive, although average prices relative to the United States and other metropolitan areas is becoming worrisome.

Hotel-room occupancy is still increasing, as are building and construction starts. Retail sales continued strong through September.

A slowdown in the local economy may occur because of consumer worry about debt levels – although this has not had much of a dampening effect in the past – lower projected corporate earnings as demonstrated recently by Hewlett-Packard Co.’s quarterly earnings report; lower in-migration rates as the California economy improves and as workers begin to worry more about keeping the job they already have; and less strength in retail sales and the commercial and residential construction sectors.

The Business Research Division at the University of Colorado at Boulder is predicting slower, although still healthy, growth in the Colorado economy for 1997.

They consider the slowdown to be a welcome respite, a chance to catch up on building the infrastructure necessary to accommodate growth. The local economy must also make these infrastructure changes as traffic becomes denser and slower and as other government services, including education, become stretched to the limit.

The Business Research Division also expects in-migration to Colorado to fall by 33 percent in 1997, unemployment to increase slightly but still remain below the U.S. level, the cost of living to increase faster than the U.S., and jobs in construction to fall by 2,000, mainly because of fewer residential construction starts.

Average wages in Northern Colorado, according to the Colorado Department of Labor and Employment, increased at a rate slower than the state in 1995 (3.7 percent, 3.2 percent and 2.4 percent, respectively, for Colorado, Larimer and Weld counties).

Average wages in the two counties are also below the state by about $3,000. These differentials were probably maintained in 1996 and will continue in 1997. These differences will persist as long as in-migration continues to match job creation. Useful indicators of any change are local unemployment rates and whether entry-level job salaries (workers at fast-food outlets) fall back to the minimum wage.

Our models forecast a population increase of 2.11 percent in the Northern Colorado economy from 1996 to 1997. The increase in total employment is forecast to be 3.36 percent, thus putting increasing pressure on wages.

The Business Research Division is forecasting a 2.6 percent increase in job growth for the state. Northern Colorado should again outperform the state.

Per capita income is forecast to increase 2.74 percent in Weld County and 3.18 percent in Larimer County. Total personal income is forecast to increase by 3.56 percent, creating $7.56 billion in personal income in Northern Colorado.

When we use our input/output model to determine the impacts of forecast employment increases, we see that almost one-half of the job increases will be in the trade and service sectors.

Total wages and salary income in the economy will increase by $250 million. Sixty-five percent of this additional income will be in the form of wages, salaries and proprietors income; the rest will be business income and can be used to fuel business expansion.

Exports from the local economy will increase to about $5.4 billion, an increase of $225 million over 1996.

When we examine important economic variables in Larimer and Weld counties, the most impressive factor is the consistency of growth.

Sure, there have been slowdowns, but very few negative growth rates. Even when the Colorado economy slowed in the late ’80s, Northern Colorado wasn’t significantly hurt. Most Colorado slowdowns have been absorbed by the construction sector and real estate values. Agriculture income does not grow consistently, primarily because of the weather and volatile export markets.

The growth in government employment, especially federal government employment in Larimer County, has definitely peaked for the short term.

But the truly important economic factors: population, total employment, manufacturing employment, services employment, per capita personal income, and total transfer payments will continue to show relatively steady increases in 1997 and beyond.

John Green is a consultant and professor of economics at the University of Northern Colorado in Greeley. Eric Siverts heads the Fort Collins-based Siverts & Associates.