On The Economy: Economy rebounds in second quarter

But weak sales figures may portend future retail sales slowdown

The Northern Colorado Business Report Index of Leading Indicators shows very strong recovery in our economy during the second quarter, pulling the forecast up from zero/negative growth to the 3 percent to 5 percent range for 2003.

The events of Sept. 11, 2001, had a significant negative effect on growth in the local economy, but the economy seems to have recovered in the second quarter of this year. The growth index indicates that in June we were growing 3.5 times faster than the average monthly rate in 1991.

Growth in the U.S. economy continues to be weak, but positive. I don’t think there will be a double-dip recession, but it depends on whether the Bush administration takes unilateral action against Iraq or if another major terrorist-related action takes place on U.S. soil. The stock market is a leading indicator of growth in the U.S. economy and it is signaling weakness for the next six to nine months. Investors are very disillusioned by illegal and unethical actions on the part of corporate management and that disillusionment is being factored into stock prices.

Interest rates are at 40-year lows and corporate investment is not increasing. Capacity utilization remains relatively low, in the upper 70s percentile. Home owners are refinancing at record rates, locking in rates that many of them have never seen. I don’t think the Fed will significantly lower rates again this year; investment is not occurring at current 40-year lows and probably would not occur if rates were a little lower. Government budget deficits will soon begin to put upward pressure on interest rates as the Treasury is forced to borrow, competing strongly in the market for investment funds.

Employment in Northern Colorado continues to grow in spite of frequently announced layoffs in the high-tech and manufacturing sector. The mix of employment is shifting towards lower-paying retail and service jobs supporting the influx of newly retired persons and their luxurious housing, purchasing and eating demands. The unemployment rate will probably hover around the 5 percent mark for the rest of the year. Much depends on the construction sector that is a major employer in our economy.

The total value of construction being put into place in Northern Colorado exploded to record levels in July, far exceeding even 2001 levels. No wonder employment is increasing in the face of layoffs. The value of new construction each month is now 10 times greater than its average monthly level in 1991.

The number of single-family, detached-housing permits awarded was very high in May, higher than in 2001. New jobs are still being created and newly retired persons are still moving in, both of which create demand for new housing. The growth rate for these permits is six times higher than in 1991. The value of these permits continues its strong rate of increase.

Total motor-vehicle registrations also surpassed 2001 levels, the result of new residents and zero percent financing. We now have double the number of cars on our roads than in 1991. The November ballot will ask us to approve funding options to increase road capacity to accommodate new traffic and longer driving times created by remote housing developments.

New sales-tax accounts issued to new businesses in Northern Colorado rebounded from the pessimism caused by 9-11, but have not surpassed early 2001 levels. They are double their average rate in 1991.

There are signs that retail spending in Northern Colorado is slowing. Year-over-year growth through June was only 1.5 percent, much lower than the 8 percent to 10 percent rates of growth we enjoyed in the 1990s. Slower rates of growth are the result of 9-11, strong Christmas 2001 buying and a weak stock market.

Nationally, back-to-school sales have been weak, a good leading indicator of the strength of Christmas buying. Retail sales are three times higher each month than in 1991.

Annual bankruptcies per 1,000 persons increased sharply from mid-2000 to mid-2001, but have leveled off and begun to slowly decrease. Bankruptcies are a lagging indicator, reflecting what happened last year. Creditors usually work with deficient clients for about one year before bankruptcy occurs. Voluntary bankruptcies do not follow these rules.

So, in summary, the Northern Colorado economy rebounded strongly in the second quarter. The local economy is likely to continue to grow at a 3 percent to 5 percent annual rate, regardless of what happens to the national economy. Local growth would be negatively affected by military actions and additional acts of terrorism.

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