The hazards of economic forecasts

EDITOR’S NOTEBOOK

Heads or tails?
You might as well flip a coin when it comes to predicting the performance of the region˜s economy. One economist, Dr. Sung Won Sohn of Norwest Banks, predicted in Fort Collins in October that the nation would enter a recession before the year 2000 and that its repercussions will most assuredly be felt right here in Northern Colorado and Southern Wyoming.
A few weeks later, Dr. Stephen Happel, an economist with the University of Arizona brought to Fort Collins by First National Bank, predicted that the current national economic boom will last for at least another 10 years.
What˜s one to make of these diametrically opposing views. Sohn says that inflation will be spurred by higher wages brought on by the labor shortage, while Happel says inflation won˜t worsen unless the Federal Reserve screws up and increases the money supply too fast. Without big increases in the money supply, he says, wage hikes will be offset by companies cutting costs elsewhere.
It˜s these sort of inconsistencies that explain why headlines can run in the business and daily press that say "Economist predicts recession" one week and "Boom to last another decade" a few weeks down the road. It˜s enough to drive business editors — not to mention business owners trying to plan for economic cycles — mad.
But, if you examine certain industry sectors, as The Northern Colorado Business Report does in this edition, certain signals can be garnered. In health care, expect higher premiums for health insurance. In banking, expect more street corners to sport new branches, with some new banking companies coming into the market.
Real estate will see a glut of office space begin to take form in Fort Collins, while the construction sector will remain busy with widespread expansion in the manufacturing sector from companies such as Hewlett-Packard Co., Celestica Colorado, StarTek Inc., EFTC Corp., Doors Plus and many others, as well as a continuing spate of retail construction.
Every industry increasingly will feel the effects of the skilled and entry-level labor shortage, with wages already beginning to increase, some in the 30 percent range. From new retailers coming into the market to longtime manufacturers looking to expand, the tightness of the labor market is reaching an unprecedented level.
In the residential real estate market, which drives so much of our economy, look for another good year.
In short, it looks pretty good for the region˜s economy, with most predicting slower — but still quite positive — growth. What the Norwest economist and others warn about is the unforeseen circumstance. What happens if wages do drive up inflation? What effect will the Asian economic crisis have on the global economy, and how might that filter down to the Northern Front Range? Will the coming debut of the Euro cause investors to abandon the dollar for the new European currency, or will investors flock to the dollar because of uncertainty over the Euro˜s effect on global markets?
To answer these questions, you don˜t need an economist; you need a crystal ball.
So what will it be, heads or tails for the region˜s economy? Take these few words of advice from your friendly neighborhood business editor: When it comes to the regional economy, things look positive. But to plan for changes in the national or world economies and their inevitable repercussions locally, keep your heads up.
And watch your tails.Christopher Wood can be reached at (970) 221-5400, (970) 356-1683, (800) 440-3506 or via e-mail at [email protected]. His fax number is (970) 221-5432.

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