On The Economy: Negative growth seen last few months

Area turnaround may take longer than most expect

The Northern Colorado Business Report Index of Leading Economic Indicators reports negative growth in the local economy in four of the five months from September through January. Release of more-recent Fort Collins retail sales statistics and housing-permit data suggest negative growth probably persisted through February.

The local economy has not experienced growth this slow since late 1996 or early 1997, when four of seven months showed contraction. The current slowdown has been very sharp, undoubtedly precipitated by the tragic events of Sept. 11.

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Recent articles in The Wall Street Journal suggest that many analysts believe the current national recession — if we ever really had one — is probably over and the national economy is growing again. I’m not quite so optimistic. The stock market is slowly gaining ground, suggesting the U.S. economy will be growing slowly four to six months from now. If the national economy is growing, it is growing slowly and the go-go days of the late 1990s won’t soon return.

Resiliency in the national economy has been provided by continuing growth in productivity. Productivity during this economic slowdown has held up very well, dampening the effects of a normal recession.

The state of Colorado recently re-benchmarked employment numbers back to 1999 using new population estimates. This leveled out employment growth in 1998, 1999 and 2000 and produced a greater increase in 2001. Employment gains in 2002 will be much more difficult to attain given current sluggishness in our economy.

The labor force continues to grow as employable people move to Northern Colorado. This significant increase in the labor force, coupled with slow growth in employment, caused the unemployment rate to jump from 4 percent in October to 5.7 percent in January.

We have a problem in Northern Colorado. The desirability of our area as a place to live creates a steady influx of new residents looking for jobs. Any failure of our economy to provide jobs for these new residents creates unemployment and unwanted social problems.

The value of new construction being put into place was very volatile in 2000 and 2001 and took a serious dive in January 2002. Institutional construction will slow significantly because of state budget woes and any slowdown in economic growth will reduce tax revenues.

The drop in the number of new, single-family-detached housing permits being issued is ominous. This probably indicates that builders are detecting weaker demand for current inventory and are reluctant to pull new permits for future construction. The December 2001-January 2002 numbers were last seen, briefly, in 1998 and 1999. The value of new single-family permits also dropped sharply.

Motor-vehicle registrations held up well in the fall because of sales incentives and have not weakened significantly since Jan. 1. New residents continue to register their vehicles and sales incentives have recently returned to stimulate sales of new vehicles.

New sales-tax accounts have been very volatile since September, reflecting uncertainty about the national economy and changes in our perceptions of security. New accounts issued recovered sharply in January but February came in weaker than forecasted. Entrepreneurs are reluctant to start new businesses in the face of current economic uncertainties.

Retail sales have held up very well. The Christmas selling season was stronger than I expected, with November and December sales showing a 4.2 percent increase over the same months in 2000. Recent newspaper reports, however, suggest retail sales have slowed in January and February from the same months in 2001.

Bankruptcies continue to increase, equaling the peaks of 1998 and 1991. The effects of national legislation have probably not been fully factored into the numbers and it’s possible that the new legislation was watered down sufficiently so it won’t have a major impact.

So, where is the local economy headed in 2002 and 2003? I don’t think negative growth will persist. But neither do I think we’ll return to the go-go days of the 1990s. The domestic product (economic output) of the Northern Colorado economy increased at a compound rate of 9.1 percent from 1990 to 2000. That’s faster than the economic growth rate of China and compares to a U.S. growth rate of 2.5 to 3.5 percent.

We could be happy with a growth rate double that of the U.S. economy.

John W. Green is a regional economist with the U.S. Department of Agriculture. He can be reached at (970) 484-6463.