Guest Column: How does Green read his crystal ball?

Economist reveals how he does it

How do I determine whether the local economy is slowing? What signposts do I read and what data tell me critical changes are taking place in the economy that indicate the future direction of local economic activity?

First, and the most-important fact to remember, there is no one economic series that tells us everything we need to know; that leads unfailingly to a correct reading of the future. That’s why “If all the economists were laid end to end around the world, they would never reach a conclusion.” That’s also why we have “the other hand.”

Our economy, national or local, is very diverse. A slowdown in economic activity for one segment of our economy may mean increased activity in other industries. For example, agricultural producers that depend on crop production have been in a recession for 2 to 3 years while livestock producers, manufacturing and service industries in our local economy have been doing very well.

It depends on whose “ox is getting gored” and not all businesses suffer equally and at the same time. That’s one of the benefits of our free-market, democratic economic system: Entrepreneurs are invited to take economic risks with the payoff being above-normal profits.

So, how do I do it? I read The Wall Street Journal every day. I use it to form general opinions, to get a “gut feeling” about what the national and world economies are doing, to see what other economists are saying, and to see what monetary and fiscal policy is fomenting for the future. I don’t believe everything I read, especially statements made by politicians, and I try to read between the lines, even when I read statements by economists.

I follow published data for Colorado, analyses performed by our state agencies and statements by Denver economists, especially those news items referring to the Front Range and affecting the basic sectors of our state economy: agriculture, energy, tourism and high tech. Thus, I merge my national “gut feeling” with the health of the state economy.

That brings us to “What’s happening in the Northern Colorado economy?”

The construction and agricultural sectors drive our local economy. They are more “integrated” with our total economy than are, say, the high-tech sectors. Agriculture raises calves (lambs, piglets and chicks) and crops, combines the two in feedlots, slaughters them locally and ships the finished product.

This integrated supply chain is far more important to the local economy than an industry that imports inputs, uses local labor to add value and then exports a product.

The construction sector is also integrated, although probably less so than agriculture. We import lumber (and soon cement) and combine it with local land, labor and entrepreneurship to produce homes, commercial and government infrastructure and streets. The homes and commercial buildings are furnished (usually) from local businesses and, in some cases (cabinets), their inventory is built locally.

So, that leads us to The Northern Colorado Business Report indicators and indexes, published every quarter and assessed via public forums early in every new year. Remember, I already have a “gut feeling” for the national economy, including new farm legislation, the level of interest rates, fiscal policy changes like tax rebates, the value of the dollar in international trade and the health of major foreign economies, especially Canada and Mexico.

Construction is very important to the Northern Colorado economy. Do F.W. Dodge statistics say the value of construction is still increasing in Northern Colorado? Are single family and multifamily housing permits still increasing in a spiral that suggests everyone will live in Northern Colorado soon? Is our region still receiving favorable national publicity, enticing retired persons and young techies to join our ranks and spend their money?

Employment drives every economy and employment must be growing in order for an economy to enjoy sustained growth. Exports can keep an economy growing for a while (Japan) but, eventually, someone will produce it cheaper (China) and take your export market away from you. Then, even if interest rates are zero, no one will invest in your economy. New employees demand houses, new schools and streets, buy cars and, generally, shop locally. They also want to go to university here and stay after they graduate.

The bottom line is that when employment is growing, retirees are moving in, tourists are visiting and agriculture is profitable, then new cars will sell and motor-vehicle registrations will in-crease, new sales-tax accounts will be issued and retail sales will put money in the tills of businesses.

And Northern Colorado will be the envy of many less-successful communities without the beautiful endowment of natural resources that we enjoy and must maintain.