On the Economy: Indicators show weak growth

The Wells Fargo Bank/Northern Colorado Business Report Index of Leading Indicators is flashing caution. Economic growth in Northern Colorado in the second quarter of 2001 slowed from the first quarter. Growth is slowing but is still positive. Our economy has experienced two months of negative growth in recent years, one in late 1999 and the other in early 2000, but we did not experience negative growth in any month in the first half of 2001.

I think it is quite likely we will experience more than one month of negative growth in the second half of 2001. There are several factors weighing negatively on the local economy. Consumer sentiment and, inevitably, buying is weakening because of all the depressing news about the U.S. economy, terrorism and further declines in the stock market (the wealth effect). The agriculture sector is recovering very slowly; livestock prices remain strong. Major foreign economies are weak and exports of agriculture commodities are not increasing rapidly. The high-tech sector is facing weaker consumer demand and is reducing its work force. Consequently, I do not expect the 2001 Christmas buying season and all its supporting economic activity to boost the local economy. This will cause economic statistics to be lower than in 2000 and annual growth to be negative. Economic growth in the second half of 2000 was very strong and we will not surpass it in 2001.

The majority of economists still expect the national economy to recover quickly. There is a growing minority who are predicting that the recovery will not occur until the third quarter of 2002. I do not think the national economy will recover in the second half of 2001 but should show some growth in the first half of 2002. The Bush tax cut is not being spent by consumers and will not provide the expected boost to economic activity. Thus, we might have a brief national recession (two consecutive quarters of negative growth).

Will the local economy be affected by what’s happening in the national economy? Certainly. Will the local economy experience a minor recession? I don’t think so. Sustained growth may slow to substantially less than five percent, but I think the Northern Colorado economy will only sputter before catching fire again.

In fact, the employment graph nearby looks like the growth in employment is sputtering. Growth in employment was shaky and flat in 2000 but did show weak growth, in spite of what we hear about layoffs, in the first half of 2001. The first-half statistics may yet be revised downward and employment growth may collapse in the third quarter, but it was stronger than I expected in the first half.

The increase in the unemployment rate is reasonable; we have just come to expect too much. The unemployment rate is still under four percent and is less than in any year since 1986 (the limit of my statistics) except 2000.

The total value of construction being put into place in Northern Colorado reached a new peak in the second quarter. Construction is currently providing major support for the local economy. If construction collapses, and that doesn’t seem likely, our economy will probably experience a recession, just as the Colorado economy did in the late 1980s when energy construction collapsed in Denver and on the Western Slope.

The number of single-family housing permits issued also continues to reach new peaks, permits which lead to more construction and retail sales. We have reached new highs in this statistic every year since 1997. New retirees relocating to Northern Colorado, the result of The Wall Street Journal article and other publicity, should strengthen this statistic next year and in the years following. The value of existing and new housing also continues to increase, allowing homeowners to trade up and make more retail purchases.

Motor-vehicle registrations are flat. Dealers are offering incentives, their version of sale prices. Nationally, new-auto sales are down as consumers cut back on purchases of this big-ticket, durable consumer item.

New sales-tax accounts being issued in Northern Colorado are volatile from month to month but I would expect them to weaken as we move towards the Christmas season. I’m not the only economist expecting a slower Christmas retail season so this is not the year to risk starting a new retail business.

Recently passed national legislation is expected to reduce the number of bankruptcies by making bankruptcy harder to declare. But recent numbers show that foreclosures are up in the Denver metro area and we would normally expect an economic slowdown to increase the number of bankruptcies.

All things considered, I would be cautious about making major new investments at this time. The local economy will continue to slow but will probably not experience a recession.

John Green is a local regional economist and retired university professor with more than 30 years experience applying economics to local and national issues. He has lived in Fort Collins since 1975.