National slowdown hits here; labor remains tight

By Richard L. Wobbekind

The economic slowdown that hit other parts of the United States in the latter part of 2000 finally has hit Boulder County.

While the national Leading Economic Indicator (LEI) acts as a precursor to the growth or decline of the gross domestic product (GDP), our local Leading Economic Indicators primarily forecasts future Boulder County employment trends. After signaling the typical first-quarter employment decline, our leading economic indicator series turned positive again in its forecast for the second quarter, albeit at a level well below previous years.

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At the national level, the fourth-quarter GDP grew at a 1.1 percent annualized rate, the lowest since 1995. In addition, the average quarterly Treasury bill interest rate spread between short-term and long-term rates was negative for the second consecutive quarter.

This narrowing gap, which began in the fourth quarter of 1999, and eventual rollover to a negative value, has accurately pointed to the national economic slowdown. As we go to press, there are signs that this trend may be reversing, as continued short-term rate cuts have restored a more normally shaped yield curve.

At the national level, unemployment has risen slightly to 4.2 percent and remains below the natural rate of 4.5-5 percent. Finally, while the national LEI decreased slightly during the past several months, the Consumer Confidence Index registered a substantial drop during the fourth quarter of 2000 and the first quarter of 2001.

The wealth effect has been negatively impacted as the fourth-quarter 2000 value of the Nasdaq was at 54 percent of its first-quarter value. Unfortunately, this trend has continued through the first quarter of 2001. The value of the Boulder County Stock Index, compiled by CNET, decreased less dramatically, with the fourth-quarter value 79 percent of the first quarter value.

The quarterly average size of the employed labor force in Boulder County increased to 183,157 workers by the end of the fourth quarter. This represents an increase of 4.6 percent, or 8,052 workers, in the quarterly average compared to the same quarter in 1999.

At the state level, fourth-quarter average comparisons only show a 2.2 percent increase for 2000. The fourth-quarter unemployment level for Boulder County dropped to a record 2 percent. The non-seasonally adjusted January unemployment rate for the Boulder-Longmont MSA rose to 2.2 percent.

Both the county rate of 2.2 percent and the state unemployment rate of 2.7 percent, however, are well below the previously mentioned natural rate. This continued labor force tightness will most likely result in real wage growth throughout 2001 despite the economic slowdown. While layoffs have and will occur in certain high-tech sectors, in many cases these layoffs are a result of failures caused by growth at too rapid a pace, the inability to produce products that are appropriate for the market, or downturns for components that are expected to be short term.

Monthly retail sales for Boulder County exceeded $1 billion for the first time in December as the fourth-quarter retail sales exceeded $2 billion. For the year, Boulder County retail sales almost reached $7 billion, 9.9 percent greater than for 1999. The significant change for 2000 was the addition of FlatIron Crossing, which significantly altered retail trade patterns. A more careful analysis of year-end data is needed to assess the intra- and intercounty impacts.

The county construction market showed comparatively low growth throughout 2000 as a result of high real interest rates. The 2000 value of total residential building permits, $379.3 million, was 3 percent greater than in 1999, despite 16 percent fewer permits. The strength of residential growth was in single-family housing as the total value of single-family permits, $349 million, was 7 percent greater in 2000, with 5 percent more permits. After a strong start, non-residential building, with a value of $376.6 million, dropped off; the value for 2000 was 19 percent less than in 1999.

Increased wage-related personal income in conjunction with the wealth affect of rising stock market prices and home values are two of the many factors that drove the economy during the first part of 2000.

While low interest rates and the increase in population will help maintain strong real estate prices, it is yet to be seen what effect the decrease in the value of stocks will have on consumer spending.

For workers who are counting on stock options as a source of income, the erratic market will likely curb their expenditures on retail sales, especially on durable goods and luxury items. Surging energy costs also have decreased the discretionary income of many households, which will also have a negative impact on spending.Richard L. Wobbekind is associate dean of external relations in the College of Business and Administration at the University of Colorado at Boulder and director of the college’s Business Research Division.