On the Economy: Regional economy rebounds — for now

The 1st Choice Bank/Northern Colorado Business Report Index of Leading Economic Indicators rebounded sharply in the first quarter of 2000 from negative annual change in late 1999. In fact, the first-quarter rebound was as strong as the 1999 fourth quarter was weak.

I still think, however, that slower growth is on the Northern Colo-rado horizon. We are seeing slower growth in the U.S. and Colorado economies, and I don’t think the Northern Colorado economy will escape a similar fate.

The unexpected strength in the U.S. economy early in 2000 was heavily concentrated in consumption, motor vehicle and industrial-sector activity, although nearly all of the major gross domestic product components, except exports, revealed upward revisions from earlier estimates.

The concerns of National Association for Business Economics panelists are that the U.S. economy is less interest-rate sensitive than it once was and that productivity growth will slow if the tech-stock correction results in a slowdown in capital spending.

Growth in housing starts and retail sales are already slowing nationally as a result of the Fed’s latest half-point increase in the interest rate.

The rate at which housing permits grew was stronger than expected in the first quarter. Housing starts will slow because of the increase in mortgage costs, although Weld County will probably not show as much weakness as Larimer County.

The encouraging sign is that long-term government bond rates are coming down. That suggests some of the money coming out of the stock market is going into bonds, driving bond prices up and rates down.

This would suggest that the Feds will not raise rates again in the near future. The national economy is showing the weakness that the Feds were looking for.

The value of new homes being built in Northern Colorado will also slow its rate of increase as higher mortgage rates drive up monthly payments.

Motor-vehicle registrations in Nor-thern Colorado are also slowing their rate of growth. Nationally, new car sales have slowed, and manufacturers are exploring sales incentives and marketing strategies to move buyers into smaller sport utility vehicles and pickups.

Persistently higher gas prices this summer will also contribute to slower sales and fewer miles driven. Gas prices have exceeded $2 per gallon in some regions of the United States — the psychological barrier above which complaints increase and miles driven decrease.

New sales-tax accounts issued in Northern Colorado recovered nicely in the first quarter from the drastic slowdown in the latter half of 1999. But if our economy slows its rate of growth, look for the number of new sales-tax accounts issued to slow even faster.

Retail sales in Northern Colorado continue their strong rate of growth, although I do not expect the trend to last. Weaknesses in local retail sales are likely to mirror recent weaknesses in retail sales in the U.S. economy.

The growth rate in employment in Northern Colorado was much stronger than expected in the first quarter. Unemployment is low, and wages are increasing faster than the rate of inflation. The minimum wage in Northern Colorado is effectively $6.50 to $7 an hour.

Livestock prices have held up fairly well, but in general, the agriculture sector is weak.

So, to summarize, look for weaker growth in the local economy.

Growth rates are likely to fall below 5 percent for most of the months remaining in 2000. Annual monthly rates of growth over the same months in 1999 are likely to be negative for some months as we close out the year.

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