Fed economists upbeat for regional, national economy

The Federal Reserve Bank came to Fort Collins on May 11 at the new Hilton on Prospect Road. It was an interesting program, presented by Colorado State University’s own Stephan Weiler (currently on loan to the Fed’s Kansas City branch as assistant vice president and economist) and George A. Kahn, a long-time economist at the Kansas City branch.
Weiler talked about Colorado’s entrepreneurial economy that is, apparently, very strong at this time, especially in rural counties. Entrepreneurs are innovative people who seize or create new opportunities to enhance their personal balance sheets, thereby creating new value and economic growth in their local economy. New value can be measured in several ways, but the easiest are new bank accounts, greater account values and more Gross Regional Product.
Fort Collins was recently ranked No. 1 in the nation in terms of innovation. Several factors contributed to this recognition: CSU and neighboring universities and community colleges, the recent layoffs of smart, creative professionals (yes, even the negatives help), our climate, and our environment.
Weiler referred to these as skills, sectors and setting, all of which have been combined by entrepreneurs to gain our economy some recognition.
Weiler divided entrepreneurial factors into lifestyle and skills. He said that a favorable lifestyle makes a smaller and indirect contribution to economic growth but must be present. The much higher value entrepreneurial skills are the money factors. Entrepreneurs with education, experience and creativeness make things happen and have a direct effect on growth of the economy.
Two key institutions that facilitate this entrepreneurial process are high-quality education and banking depth. Colorado, and especially Northern Colorado, has a high number of banking deposits per capita, suggesting that most of these entrepreneurial earnings stay in the community and are recycled by local banks. Perhaps you’ve noticed the large number of new banks and branches present in Northern Colorado. Thank the entrepreneurs and new retirees, many of who are also entrepreneurs, for enhancing the capabilities of the local banking sector.
But our economy must keep growing to create new opportunities for these entrepreneurs. Entrepreneurs are not so obvious in stagnant or declining economies. So who came first, the entrepreneurs or the growing economy? Well, like most things, it’s a little of both. Entrepreneurs may have kick started some sectors, but growth created many other opportunities. Many of the new businesses started by entrepreneurs are in the construction sector, or service that sector.
Kahn praised Fed Chairman Alan Greenspan, saying that he has done a good job of managing the money supply and interest rates during his tenure and that, as a result, the national economy will experience a soft landing in 2005 and 2006. He thinks national economic growth will remain in the vicinity of 3 percent and that inflation will increase, but primarily because of energy costs.
Kahn was concerned in the long run about the very low domestic savings rate, but admitted that, because of low interest rates and investment in residential housing, consumers’ balance sheets were in good shape.
Kahn also commented that foreign investment in our burgeoning deficit was not likely to dramatically decrease because it is not in the best interest of foreign banks to allow the value of the dollar to drop, thus diminishing the value of their holdings of U.S. government securities.
As my readers know, I’m not as optimistic about the outlook for the U.S. economy as is Kahn. By the end of 2006, we’ll know who was the most prescient about the outlook for the national economy.

John W. Green is a regional economist who compiles The Northern Colorado Business Report’s Index of Leading Economic Indicators. Green, a Fort Collins resident, was previously chairman of the University of Northern Colorado economics department.

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