On the economy: Region’s economy may see upturn after dismal 2003

The Northern Colorado Business Report Index of Leading Indicators, sponsored by First National Bank and Union Colony Bank, shows that the Northern Colorado economy is experiencing serious difficulties. 2003 was the worst year in the Northern Colorado economy since the recession of 1991, the period on which this indicator is based. 2003 looks even worse because it immediately followed the best year in the new century, which was stronger because of the recovery from 9/11. Hopefully, 2004 will be free of external shocks and will establish a new growth trend.

The statistics describing the national economy indicate that it is growing in the 3 percent to 4 percent range. But there is a good deal of caution being exhibited by consumers and investors. Many of the underlying economic fundamentals are screaming caution even while current statistics show the economy is growing. Employment has not picked back up, the budget deficit is growing to very dangerous proportions, the trade deficit is growing as we continue to consume imports, and exports are not increasing rapidly in spite of a weak dollar. The major stimulus keeping the economy growing is war spending via increased defense outlays and the hope for greater consumer spending from another round of tax cuts. It looks like the Arab countries will continue to restrict the supply of petroleum, driving gasoline and fuel prices even higher, increasing the likelihood of inflation and higher interest rates. Altogether, not a rosy scenario.

The state and local economies are receiving mild stimulus from the recent increase in technology spending and increasing profits reported by the technology companies. The stock market seems to be indicating that the recent technology bubble might be deflating. The stock market is a fairly reliable indicator with a 90-to-120-day lead, suggesting that the national economy won’t look so robust in August and September.

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Employment in Northern Colorado keeps growing, although the trend is beginning to level off. Looking at data for the individual counties shows that Larimer County employment is decreasing, while Weld County employment had a large increase in 2003. Economic growth in Northern Colorado is shifting from Larimer County to Weld County, primarily driven by residential and other types of construction. The type of employment is also shifting, moving from high-tech manufacturing to service and lower-tech manufacturing.

The unemployment rate took a big jump in 2003 because of benchmarking of employment numbers by the state. New data shows that migration into Colorado was lower than expected; thus, the labor force is smaller than expected and, therefore, the number of unemployed persons is a larger portion of the smaller work force. It’s difficult to accurately estimate inter-census population and interstate flows.

Growth in the total value of construction being put in place in Northern Colorado has peaked and is beginning to decline. Planned institutional and commercial projects have not yet kicked in to boost construction in 2004. Northern Colorado is moving toward being a haven for retiring baby boomers, and construction of medical facilities and lifestyle centers is preparing for that demand. That type of activity will probably provide the impetus for the next round of economic growth in Northern Colorado. It’s not here yet, however, because the number of single-family housing permits being pulled is rapidly declining. Any increases in interest rates will slow housing development even further.

Weld County recently adjusted its total motor-vehicle registrations up over 40 percent, so we now have far more vehicles on Northern Colorado roads than we thought. However, this across-the-board increase did not seriously affect the growth rate. We really do need more government investment in our road infrastructure. Higher gasoline prices will slow the increase in miles driven, but only temporarily.

New sales-tax accounts being issued continue to increase. Retail entrepreneurs are still optimistic that Northern Colorado will continue to provide a market for their products. The number of new retail permits issued in February set a new record high at 675. Their optimism is well-founded if they can survive until the next round of growth in their particular niche.

The growth in the value of retail sales, however, is starting to level off. Numbers from the state are being published more slowly than they used to be, so we have sales numbers only through November. The trend line just passed through the $800 million per month level, and we now can look forward to some months when retail sales are at least $1 billion. There is a lot of money flowing through the Northern Colorado economy.

Bankruptcies are the primary reason our economy looks so weak. The bankruptcy rate shot through the five-per-thousand line in early 2003 and by the end of the year was more than halfway to the six-per-thousand rate. Bankruptcies in 2003 were 25 percent higher than at the depth of the 1991 national recession and more than double their lowest point at the beginning of 1995. Bankruptcies are a hidden drag on growth in any economy.

It’s an election year, so we know the current administration will do everything it can to keep the economy growing through November. The economic fundamentals in the United States, however, are not encouraging and our reputation in international business circles has been seriously damaged by the war in Iraq.

John W. Green, PhD., is a regional economist. He can be reached at (970) 484-6463.