On The Economy: Local economy slowing but still robust

The Northern Colorado Business Report Index of Leading Economic Indicators fell into negative territory in September in response to the tragic events in New York City and Washington D.C. Revised statistics may later lessen the severity of this fall, but economic growth definitely slowed in Northern Colorado as a result of these tragic events. Growth rebounded into positive territory in October and November looks positive but weak. However, Christmas retail sales slowed after Thanksgiving Friday and I do not expect December to match last year’s retail sales, which were very strong.

The Northern Colorado economy has had 12 negative growth months since the national recession of 1991. There was a negative month in 2000, one in 1999 and two in 1998. The year 2000 was a strong growth year and 2001 will not be able to match it; the strength of 2000 makes 2001 look worse than it really has been.

Growth in Northern Colorado is definitely slowing but is unlikely to be negative year over year. The commercial, residential and institutional building sectors are all strong and the high-tech sector is already showing signs of bouncing back in 2002.

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The agriculture sector remains weak and will not contribute much to growth in the local economy in 2002. Since much of the local economy’s retail sales sector serves a greater agricultural region, this sector will be a drag on Christmas sales.

Employment growth remains strong. The local economy has added more than 16,000 jobs since Jan. 1, 2001, many more than the number of layoffs that we have experienced. While layoffs from big companies receive headline attention, the absorption of these layoffs by smaller firms is not so obvious. These new employees are bringing much needed stability to these smaller firms, cutting expenses related to high employee turnover.

The reabsorption of these employees is keeping the unemployment rate in Northern Colorado below 4 percent while the Colorado unemployment rate jumped over 5 percent. I would be surprised if the local unemployment rate gets over 5 percent in 2002.

The value of new construction being put into place in Northern Colorado is still growing rapidly. This sector remains the strongest sector in our economy and I do not expect it to weaken in 2002. Longer-term prospects for the health of this sector are very good as more retirees and businesses select Northern Colorado as a permanent destination.

Motor-vehicle registrations have increased rapidly this fall, the result of zero percent financing to stimulate automobile sales in the face of weakness in the national economy. I think that many of these sales are being borrowed from spring 2002 demand when special financing arrangements have expired. Weakness in the automobile sector could easily delay recovery in national economic growth rates.

The number of sales-tax accounts being issued to new Northern Colorado businesses fell sharply in September. No one wanted to risk starting a new business as the aftereffects of the events in New York City and Washington D.C. were unfolding. The number of new accounts bounced back nicely in October, however, and the weakness shown by November statistics is seasonally normal.

In summary, growth in the local economy is slowing but there is currently no reason for major concern. The national economy may be slow to pull out of recession but the construction sector will provide the strength we need in Northern Colorado.

John Green is a regional economist with the U.S. Department of Agriculture. He can be reached at (970) 490-8031.