EDITOR’S NOTEBOOK: Is a recession down the road?

Northern Colorado must watch for fender benders ahead. Hit the brakes.
Colorado˜s economy, accelerating at breakneck speed a few years ago and now traveling at or below the speed limit, may be in for even more of a slowdown.
Norwest Banks˜ chief economist, Dr. Sung Won Sohn, laid a few warning cones during a recent visit to Fort Collins, pointing to a slowdown ahead for the nation˜s economy, a slowdown from which Colorado — and our northern section of it —are unlikely to detour.
Sohn spoke to a group of business leaders at the Lincoln Center in Fort Collins Oct. 21 and predicted a recession in the United States, and locally, within the next two years.
"A recession will come, and probably before the year 2000," Sohn said, pegging the likelihood of a recession at 80 percent.
"You can˜t have a happy medium all the time," he added.
Colorado, Sohn noted, is more closely linked to the U.S. economy than it was during the oil and real-estate crashes that slammed the state in the 1980s. Diversification of the state˜s business base means that a national recession today will almost certainly affect Colorado, he said.
Several factors point to an economic slowdown, including the possibility that Federal Reserve chairman Alan Greenspan will raise interest rates, a move that would put the brakes on growth like nothing else. Sohn warned of possible substantial interest-rate hikes in the coming months, although some economists believe that the recent stock-market correction might ease pressure to raise interest rates.
Interest-hikes in Germany could affect rates here, and fast economic growth, as Northern Colorado has seen in recent years, also concerns the Federal Reserve.
"If Chairman Greenspan does raise interest rates, I˜m going to blame Fort Collins for it," Sohn said.
Two other economic trends also point to the possibility of a recession. Sohn noted that Northern Colorado has not yet felt the full force of the labor shortage about which local business owners so often complain.
One reason is that the high rate of in-migration from other states has eased the labor shortage, as has the high participation rate of women in the work force, which is above the national average. The participation rate in the labor force in Colorado is 72.4 percent, he said, compared with 66.8 percent in the United States as a whole.
Both those factors are changing. Population growth locally has slowed, and some women are pulling out of the work force to more-sustainable levels.
"In the future, the labor shortage will actually begin to bite you even more, because you don˜t have that safety valve," Sohn said. "Those safety valves are closing."
That means that wages, which have been held down by in-migration and a high participation rate, will climb. And what˜s the biggest component of inflation? Wages.
Sohn˜s comments just reinforce what Northern Colorado business leaders hopefully already knew: that they should proceed with caution. Many local business men and women learned valuable lessons in the 1980s, including that they shouldn˜t overextend themselves.
Some of that prudence is evident in the home-building community, which is generally cautious about building too much supply right now (and some actually speaking well of a less-frenzied pace of growth.)
And although construction helped pull Colorado out of its recession, it might not be as much of a factor today, especially with slower population growth that limits home building. Sohn noted that companies expanding in the area, such as Amgen Inc. in Longmont, Sun Microsystems in Broomfield and Celestica Colorado in Fort Collins, are inextricably linked to the national and global economies.
So, while they are building huge new plants, their ultimate fate hinges on what happens to the economies of the world — a fate that will certainly be felt in Northern Colorado.Christopher Wood can be reached at (970) 221-5400, (970) 356-1683 or (800) 440-3506. His fax number is (970) 221-5432, and his e-mail address is editor@ncbr.com.