On the Economy: Hot regional economy starting to cool down

The Wells Fargo/Northern Colorado Business Report Index of Leading Economic Indicators, after rebounding sharply in the first quarter of 2000, is again showing signs of weakness. The annual month-to-month index in April was negative, a result not seen in the second quarter since 1997.

The U.S. and Colorado economies also are showing slower growth. The last discount rate increase by the Fed is having its effect, a result that normally takes six to nine months to work its way through the economy. Labor shortages also are causing slower growth, not just because there’s not enough workers but also because turnover costs have increased as more workers move from job to job and companies do more advertising. Fewer workers also means companies are dipping deeper into the unskilled-labor pool to find employees, thus lowering the productivity of the company and, eventually, the U.S. economy. Growth in employment in Northern Colorado is slowing after three years of a strong pace. The rate of growth in 2000 over 1999 will look much like the 1995-1996 growth rate, in the 1.5 to 2 percent range rather than the 2.5 or 3 percent of more recent years.

The unemployment rate in Northern Colorado is likely to remain in the 2.8 to 3.5 percent range for the next year. The natural rate of unemployment in Northern Colorado, with our economy growing at recent rates, is probably somewhere between 2.5 and 3 percent.

There will be an explosion in the number of new single-family housing permits pulled in Northern Colorado during the third quarter because of concern over Amendment 24, the growth initiative on the Nov. 7 ballot. Therefore, the leveling off of growth in new permits in the first half of 2000 and the forecast for moderate growth is not indicative of what the second half of 2000 will bring. However, whether Amendment 24 passes or not, expect a significant slowdown in the first half of 2001. This is a perfect example of how political events can void forecasts made with even the most sophisticated models.

The value of single-family housing permits pulled in the first half of 2000 continued to increase, suggesting very little slowdown in the construction of larger, more expensive homes.

Total value of all construction in Northern Colorado is slowing slightly but should pick up as new institutional projects get under way. Northern Colorado communities deferred new institutional construction until 1997 but have been catching up since. Northern Colorado communities are still deferring new highway construction and street improvements in spite of the growth in employment, population, motor vehicles and housing in outlying areas. A strong argument can be made that this is a result of the Taxpayers Bill Of Rights, or TABOR amendment, and other tax-rebate programs during a period of time when our economy has been performing very well.

The growth in motor-vehicle registrations is continuing its 1997-1998 strength after a weaker year in 1999. Larimer and Weld Counties now combine for over 50,000 motor-vehicle registrations in most months.

The issuance of new sales-tax accounts has again slowed after a very strong first quarter. Most activity is in the Greeley-Windsor area and expectations for the upcoming Christmas selling season are influencing the number of applications.

Retail sales in Northern Colorado slowed significantly during the first quarter from 1999 and the very strong Christmas season. The 2000 Christmas selling season is not likely to be stronger than 1999. The 1999 season was the strongest in Northern Colorado during the 1990s. Strong Christmas seasons, such as 1999, are normally followed by level or slightly weaker seasons. In addition, the uncertainty of an election year and tighter credit suggests that we should temper our expectations for an exuberant Christmas retail season.

Annual bankruptcies per 1,000 population dropped under four after peaking at about 4.4 in 1998. Northern Colorado is now about where it was immediately after the 1991 national recession. Recent data suggests some leveling off in the rate of decrease at about 3.75 annual bankruptcies per 1,000 population.

The outlook for the Northern Colorado economy will also depend on election-year outcomes, not only because of who we elect to represent us, but also because of how we vote on tax and growth amendments. Business is strongly influenced by communities’ abilities to support quality education, build the necessary institutional infrastructure, accommodate growth and provide a good quality of life at a reasonable cost.

John Green is an economist with the U.S. Department of Agriculture and a faculty affiliate at Colorado State University.