On The Economy: Negative economy just passing through

The Northern Colorado Business Report Index of Leading Indicators is reporting negative growth for several recent months. In the eight months from September 2001 through April 2002, growth has been positive in only two months (October and April). The current contraction in the local economy results from at least three factors: (1) very strong growth during 2000 and 2001 (through September) that is now being consolidated, (2) the events of Sept. 11, 2001, and (3) the contraction and slow recovery of the national economy.

According to the latest Creighton University Mountain States Business Conditions Index, economic conditions in Colorado are positive and these improving economic conditions will begin to show up in the next few months. Creighton University’s strong positive index of 64.3 (50 is neutral) for Colorado in April is mirrored by the Business Report’s positive growth rate of 0.7 percent for Northern Colorado, the first positive rate in the past six months.

Because of contraction in the Northern Colorado economy over the past eight months, year-over-year growth rates will begin to look very positive in September if not sooner. As the nearby graph on the Growth Rate in Northern Colorado indicates, the moving average growth trend has now dipped almost to zero, suggesting that the momentum of growth in Northern Colorado has almost halted.

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However, if we examine individual components of growth in Northern Colorado, we see several positive signs for the rest of this year and 2003.

Growth in employment has resumed, in spite of the layoffs that are announced nearly every week. The mix of employment is changing, shifting from high-tech, because of weakness and consolidation in that sector, to residential construction and retail because of the increasing influx of retired persons.

The unemployment rate is dropping in spite of additional layoffs and is likely to hover around 5 percent or less for the rest of the year. Employment data is always subject to change by the U.S. Labor Department and the state because of updated population numbers. Employment statistics are based on surveys and population estimates in the years between decennial census years.

The total value of construction took a sharp dip at the end of 2001 but has rebounded sharply. It is obvious from all the residential housing, street and sewer construction occurring in Northern Colorado that the construction sector is supporting the local economy, just as it did for most of the 1990s. If Northern Colorado were not such a desirable place to live and work, The Northern Colorado Business Report Growth Index would not be as positive as it has been. This desirability is a resource that must be protected.

The number of single-family-detached housing permits being issued has rebounded sharply from year-end levels and will surpass 2001 historic peaks by the end of the summer. The baby boomers are retiring and many of them are choosing Northern Colorado as their retirement location. They continue to increase the value of their residential housing to new peaks.

Total motor-vehicle registrations will also hit new peaks this summer in Northern Colorado. With all the street repair and new construction in the Fort Collins area, traffic approaches gridlock during afternoon rush. Traffic capacity in Northern Colorado has not kept pace with population and business growth.

New sales-tax accounts issued in Northern Colorado reached their second-highest level in May, behind only March 2001, when the national recession was just beginning. There is little pessimism in the minds of these entrepreneurs as they open their new businesses.

There has been very little slowdown in retail sales. Consumer optimism has remained strong in Northern Colorado and all those prairie mansions require lumber, plumbing, electricity, other supplies and furnishings.

A significant negative in our economy, and in the U.S. economy, is the increasing number of bankruptcies. National legislation is changing the ease with which people can declare bankruptcy, but it will take several years for the effects of this legislation to stabilize.

The bottom line is that growth in Northern Colorado has slowed severely from late 1990s levels but the negatives that we have recently experienced have nearly all worked themselves out. Growth in our economy is slowly turning positive again and this positive pace will accelerate in the fall.

Dr. John W. Green is a regional economist who can be reached at (970) 484-6463.