December 24, 2004

Outlook: Promise versus doubt

The ?U? word.
It comes up in any reasonable discussion of the economy.
No matter how bright the possibilities for the future, there?s uncertainty under foot.
Uncertainty about interest rates, water supplies, consumer confidence, war, the dollar, oil, corporate earnings, government debt and job growth.
Still, the outlook for Northern Colorado for the new year is peppered by more inspiring ?U? words ? unflappable, uncanny and undeniable, for example.
Unflappable is an apt term for the region?s real estate and construction sectors, which seem to surge forward, treating the latest recession with a wink and a shrug.
?We think 2004 is going to finish almost to the (record) 2002 level, and basically at record levels for total home sales,? said Chuck Rehmer, a broker with The Group Inc. in Greeley. ?We?re going to project, I believe, that 2005 we’ll sustain that growth.?
Similarly, commercial contractor Terry Drahota, owner of Drahota Cosntruction in Fort Collins, proclaimed 2004 has the ?best year ever? for his firm. And 2005 is shaping up to exceed that mark.
Not coincidentally, Rehmer and Drahota point to the boom in the local health care industry as a source for their optimism. New medical projects, including construction of new hospitals and assisted living centers, are providing work for Drahota and his peers. They also translate into jobs ? and therefore homebuyers ? for the residential real estate industry.
In fact, John Green, the economist who prepares the Northern Colorado Business Report?s Index of Leading Economic Indicators (see Page 10), contends that health care could ?boost construction and related sectors and the technology-supported human health industry? in Northern Colorado.
Banks, meanwhile, maintain an uncanny ability to maintain profitability and to add new branches in Northern Colorado.
Drahota, for instance, said his firm is building three bank offices in the region.
Interest also remains high among out-of-state banks to establish a presence in Northern Colorado, demonstrated in 2004 by both acquisitions and de novo charters. Industry insiders expect appetite for growth will continue in 2005.
?Things look very positive for next year,? said Richard Fulkerson, the Colorado banking commissioner.
It remains undeniable that Northern Colorado, as with the rest of Colorado, continues to be an attractive place to which people and businesses want to move.
For instance, one local mergers-and-acquisitions consultant said 60 percent of the inquiries he receives to buy local companies are from out-of-state residents.
It?s also a low-cost alternative for other parts of the country.
?Powerful home price appreciation on both coasts, particularly in California, should see more Californians ?cashing out? of sky-high priced homes and looking for relocation opportunities in Colorado and across the West,? said Jeff Thredgold, economist for Vectra Bank Colorado.
Nevertheless, the seamier side of Northern Colorado?s economic condition is also undeniable.
The region?s employment lurched in the second half of 2004 when major employers like Hewlett-Packard Co., Agilent Technologies, Advanced Energy, Celestica Colorado and Swift & Co. combined to cut almost 2,000 jobs.
Part of the losses can be attributed to ongoing corporate restructuring, in which companies continue to move jobs to lower-cost countries, the so-called ?offshoreing? trend.
That?s not likely to change in 2005,
?They will continue to trim and need to,? said Kathy Kregel, executive director of the Fort Collins Technology Incubator.
Notably, the number of people working in the manufacturing sector in Larimer County declined by 515 between the first quarter of 2003 and the first quarter of 2004. Based on recent events, it?s like the manufacturing sector ? traditionally the top paying sector in the economy ? will lose jobs again this year.
Another sector that last jobs between the early 2003 and early 2004 was government, which includes the region?s academic institutions.
According to Green, net employment growth in the region has been a scant 1.25 percent since 2002.
Other factors at play in Northern Colorado include high bankruptcy rates ? 50 percent higher than during the 1991 recession ? and record numbers of property foreclosures.
Sluggish retail sales growth is also pinching budgets for some local governments, which rely heavily on sales taxes to support general operating expenses.
Such figures would seem to justify a recent report from the Corporation for Enterprise Development, a Washington, D.C. think tank, which gave Colorado a ?C? grade for economic performance.
By industry, here are some snapshots of how some other leading economic sectors could perform in Northern Colorado in 2005:
? Agriculture
Availability of water appears to better than in recent years, which has generated optimism for corn and wheat crops. Beef prices have been strong, but cattle feeders and ranchers are facing rising competition from pork and chicken.
? Automotive
Regional car dealers have experienced a net decline in sales, and state projections call for a drop again statewide in 2005. Concerns about the impact of rising gasoline prices and interest rates.
? Banking
Growth in the industry has created a shortage of qualified loan officers, which appears to be the greatest inhibition to future expansion. The industry?s profitability shows no signs of letting up.
? Construction
New homes and commercial projects continue to sizzle. The latter is driven by major developments along the Interstate 25 corridor, particularly near the interchange of I-25 and U.S. 34.
? Employment
Vectra Bank Colorado Economist Jeff Thredgold predicts a net gain of 40,000 jobs statewide in 2005. The most optimism exists in the area of professional and business services, which includes outsourced functions such as technology consulting and advertising and marketing.
? Health care
Likely the shining star for Northern Colorado?s economy. New projects such as the Medical Center of the Rockies and the Northern Colorado Rehabilitation Hospital are bound to boost hiring.
? Real estate
Homebuyers are leaning toward newly constructed homes, which has left the market for existing homes soft. On balance, home values have increased and demand is expected to continue in the new year. Commercial real estate figures to be mixed, with office demand in a tepid state for several years. Retailers and investors continue to show interest in strong traffic locations, highlighted by the I-25 corridor.
? High-technology
Observers expect more layoffs and major companies look to restrain costs. More than most industries, local high-tech operations are subject to national and international trends.

The ?U? word.
It comes up in any reasonable discussion of the economy.
No matter how bright the possibilities for the future, there?s uncertainty under foot.
Uncertainty about interest rates, water supplies, consumer confidence, war, the dollar, oil, corporate earnings, government debt and job growth.
Still, the outlook for Northern Colorado for the new year is peppered by more inspiring ?U? words ? unflappable, uncanny and undeniable, for example.
Unflappable is an apt term for the region?s real estate and construction sectors, which seem to surge forward, treating the latest recession with a wink and a shrug.
?We think 2004…

Christopher Wood
Christopher Wood is editor and publisher of BizWest, a regional business journal covering Boulder, Broomfield, Larimer and Weld counties. Wood co-founded the Northern Colorado Business Report in 1995 and served as publisher of the Boulder County Business Report until the two publications were merged to form BizWest in 2014. From 1990 to 1995, Wood served as reporter and managing editor of the Denver Business Journal. He is a Marine Corps veteran and a graduate of the University of Colorado Boulder. He has won numerous awards from the Colorado Press Association, Society of Professional Journalists and the Alliance of Area Business Publishers.
Categories:
Sign up for BizWest Daily Alerts