ARCHIVED  January 1, 1998

Expect a strong economy in ’98

Leading economic indicators

Expect a strong economy in ˜98

ON THE ECONOMY

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John Green
Growth in the Northern Colorado economy will likely remain strong in 1998, stronger in some areas than in 1997, according to the 1st Choice Bank/Northern Colorado Business Report Leading Economic Indicators.
Employment will continue to grow, and the unemployment rate will remain low, suggesting continued tightness in the local employment picture.
The population will increase, sustaining the demand for new housing and putting more vehicles on our roads. Per capita income will increase faster than the national rate of inflation, but probably slower than the local increase in cost of living.
The national economy continued its healthy expansion in the third quarter of 1997, with national gross domestic product increasing at a 3.5 percent annual rate. Consumer spending, which demands 68 percent of national GDP, was strong in September and October. Low unemployment, 4.6 percent in November, suggests continued strong consumer spending.
Some economists are beginning to predict a recession before the year 2000; however, it˜s not likely to begin in 1998. It˜s also questionable how much the Northern Colorado economy will be affected if a recession does occur down the road.
The Federal Reserve holds the key. Long-term interest rates are just over 6 percent. If the national economy appears to be growing too fast, the Fed may raise interest rates to slow that growth rate. However, the dollar is strong vis-a-vis other major currencies because of the strength of our economy and the weakness of other major world economies, specifically Japan, the European Community and Asian economies.
Investment in our economy looks less risky to foreigners than holding European currencies as they move towards conversion to the Euro and as the monetary crises in Japan and the Asian economies make conversion to dollars look very attractive. If the Fed raises the discount rate, this will create additional incentives to buy the dollar, further strengthening it, thus hurting our exports and making imports even cheaper. So, the Fed may be very reluctant to raise the discount rate.
Colorado˜s economy continues its slow, steady growth, slowed somewhat by our big October snowstorm, which severely damaged the livestock industry. There is also a shortage of cement, slowing the construction of commercial and residential structures and the further development of infrastructure (highways and courthouses).
Employment growth in Colorado has slowed from 4.5 percent in 1995 to 3.4 percent in 1996 and an estimated 2.5 percent in 1997.
The population in Northern Colorado will probably go over 400,000 in 1999; we will begin the new century with more than double the population of 1970. Population will be about 382,000 at the end of 1997, increasing to more than 391,000 in 1998.
The population of our region will increase because new jobs are available in our economy. Ten years ago, average monthly employment in the Northern Colorado economy was 147,000; in 1997, it will average about 213,000, a 45 percent increase (4.5 percent per year). Employment is expected to average 224,000 monthly in 1998, an increase of 11,000 workers (5.2 percent) over 1997. If we assume an average wage of $25,000, that˜s an additional $275 million of earnings in the local economy.
The unemployment rate dropped to 2.7 percent in Northern Colorado in October; it has averaged 3.4 percent so far in 1997, falling from an average rate of 3.8 percent in 1996. The unemployment rate was 7.3 percent in 1987; it has been below 5 percent since the U.S. economy came out of the 1991-92 recession.
Our forecasting model predicts an average rate of 2.8 percent during 1998, a rate compatible with the October rate and the significant increase in employment. If the unemployment rate averages less than 3 percent during 1998, the local labor market will be very, very tight.
More jobs mean more people; more people mean more cars and trucks and greater congestion on our roads. Motor-vehicle registrations were 357,000 in 1991, increasing to about 547,000 in 1997. We predict an increase to 604,000 in 1998.
Single-family residential building permits indicate that residential building will pick up strength in 1998 after a slight slowdown in the rate of growth in 1997. Permits for single-family detached units will total about 3,965 in 1997, down from almost 4,000 in 1996. Our forecast is for about 4,600 units in 1998.
Changes in retail spending are determined by changes in personal income. When per capita incomes are increasing faster than the rate of inflation, retail spending also increases faster than price increases. Per capita incomes in Northern Colorado increased about 5.4 percent in 1993, but the rate of increase has been slower since then, coming in at 3.9 in 1995, 3.3 in 1996, and 2.7 in 1997. The rate of increase is forecast to be 3.9 percent in 1998.
However, retail sales are increasing in Northern Colorado faster than changes in per capita incomes would suggest they should. This is primarily because we are becoming an increasingly big regional shopping center, serving much of adjacent areas of Wyoming and Nebraska. Also, as our retail trade sector grows, it diversifies, thus enabling us to buy locally consumer items that previously were not available. This greatly reduces the leakage of money out of our economy, increasing the size of the spending multiplier and creating more local business.
Retail sales in Northern Colorado increased more than 15 percent in 1994 with the opening of the Loveland outlet mall. The rate of increase in 1997 will be about 9.7 percent, more if the Christmas shopping season is especially good. The rate of increase for 1998 is forecast to slow to about 7.7 percent. Retail sales in Northern Colorado will be about $6.5 billion in 1997, increasing to more than $7 billion in 1998.John Green is a consultant and economist with the University of Northern Colorado in Greeley.

Leading economic indicators

Expect a strong economy in ˜98

ON THE ECONOMY

John Green
Growth in the Northern Colorado economy will likely remain strong in 1998, stronger in some areas than in 1997, according to the 1st Choice Bank/Northern Colorado Business Report Leading Economic Indicators.
Employment will continue to grow, and the unemployment rate will remain low, suggesting continued tightness in the local employment picture.
The population will increase, sustaining the demand for new housing and putting more vehicles on our roads. Per capita income will increase faster than the national rate of inflation, but probably slower than the local increase…

Christopher Wood
Christopher Wood is editor and publisher of BizWest, a regional business journal covering Boulder, Broomfield, Larimer and Weld counties. Wood co-founded the Northern Colorado Business Report in 1995 and served as publisher of the Boulder County Business Report until the two publications were merged to form BizWest in 2014. From 1990 to 1995, Wood served as reporter and managing editor of the Denver Business Journal. He is a Marine Corps veteran and a graduate of the University of Colorado Boulder. He has won numerous awards from the Colorado Press Association, Society of Professional Journalists and the Alliance of Area Business Publishers.
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