On the Economy: Maintaining growth rate becomes more difficult

So what are the long-run trends at work in our local economy?

The first conclusion that becomes obvious as we examine 1969 to 1994 data for the Northern Colorado economy is that as our economy becomes larger, it becomes harder to maintain growth rates expressed in percentage terms. As the base from which we grow becomes larger each year, it becomes much more difficult to grow by a given percentage rate.

High growth from a $1 million economy is easier than growth from a $1 billion economy. Opportunities to locally substitute for imports become harder to find, and efficiencies of larger-scale production have their impact. We can produce more with a less than proportionate increase in employees and personal income.

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Growth in total personal income expressed in nominal terms (today’s dollars) is slowing down. It increased 10.9 percent per year from 1969 to 1994 ($253 million annually) but only 7.57 percent per year from 1987 to 1994 ($378 million). The 1993-94 change was $411 million, or 6.38 percent.

If we subtract the population growth rate and the inflation rate from these annual changes, we find that personal income grew at a 2.21 percent annual rate 1969-94 but only 1.81 percent 1987-94. The real deflated, nonpopulation affected change in 1993-94 was 0.51 percent, about $2.1 million. The conclusion is that each of us was slightly better off (higher quality of life in monetary terms) after adjusting for extra dollars brought in by new residents and for inflation. This real monetary change is projected in the 0.5 percent to 0.7 percent range through 1999.

Our economy is becoming more efficient, average wages are going up, more nonworking people are moving in, and inflation is having its effect.

Transfer payments totaled almost $1 billion in the 1994 economy. They increased 12.19 percent annually from 1969-94 and 8.2 percent from 1987-94. The annual rate of increase is forecast to be in the 3 percent to 4 percent range in nominal terms, 1.5 to two times the rate of inflation. Welfare reform may have a significant effect on this growth.

Medical payments (one type of transfer payment) increased 14.69 percent annually from 1969-94 and 10.09 percent annually from 1987-94. These payments were a $213 million boost to our economy in 1994. Their growth rate is expected to slow dramatically by1999 to less than 3 percent annually, about the current rate of inflation.

Cash receipts from farm marketings, both crop and livestock, increased 5.66 percent annually between 1969 and 1994 and 4.81 percent annually between 1987 and 1994. The rate of change is very erratic, primarily because of weather effects. Agricultural commodity prices are likely to become more variable because of the phasing out of government supports, thus increasing the variability of farm income. This will put a greater premium on effective farm management.

Farm-production expenses increased 3.62 percent annually 1969-94 and 2.81 percent annually 1987-94. Increases are expected to level off at about the rate of inflation.

Realized net farm income is highly erratic, increasing 46.43 percent annually 1969-94 and 226.41 percent annually 1987-94. The years since 1987 have mostly been good years for farm income. These increases are expected to decrease dramatically because of fewer government price supports and, thus, more erratic prices for crop and livestock commodities.

So, in summary, personal income is expected to increase because of inflation, new population arrivals, and new businesses and jobs. More money will be circulating in our economy. However, employment increases will be harder to attain. Our quality of life is critical. If we maintain a high quality of life, new businesses will locate here, bringing new jobs.

John Green is a consultant and professor of economics at the University of Northern Colorado in Greeley.