Value of regional construction experiences monthly swings

Let’s examine the monthly mix of residential and nonresidential value of construction in Northern Colorado. A nearby graph shows how the mix has changed since 1987.
The total value of construction added each month in Northern Colorado is about $120 million of value to the local economy each month. (See page 10).
From 1987 to 1990 the value of new residential construction averaged about $12 million per month, while nonresidential construction actually declined from 1987 to 1991. Who can forget the energy/oil shale bust in Denver and its effect on the entire Colorado economy? Furthermore, the baby boomers were not yet retiring and Fort Collins had not been discovered by the “best places to live” publications.
That situation changed after the recession of 1991 as U.S. economic growth recovered, the computer revolution penetrated the economy and the baby boomers started thinking “early retirement.” But only residential construction picked up strongly.
By 1997, residential construction was adding $40 million per month to the local economy. Nonresidential construction increased very slowly until 2000 as state and local government kept a tight rein on infrastructure spending and commercial construction increased very prudently.
Residential construction had a couple of very big months in late 1997 and late 1998. These were driven by speculation of community zoning changes on the part of Larimer County and the city of Estes Park.
The rate of increase in the value of residential construction picked up markedly in 1998 as the trend line grew steeper. This faster rate increased further in 1999. The national economy was very healthy in the late 1990s.
Then 9/11 happened and consumer confidence was shaken. The stock market bubble had burst and the national economy experienced a brief recession. But interest rates were coming down and consumers saw that putting their savings into residential housing was a wise move.
The Northern Colorado economy reached some mythical critical mass in 2001, or pent-up infrastructure demand grew glaringly obvious, and institutional and commercial construction boomed. Big projects were announced by both government and private investors.
Nonresidential construction climbed rapidly from about $20 million per month in 2001 to $40 million per month in 2005. In August 2004, $154 million of new commercial and institutional construction was initiated. This was almost certainly the Highway 34/Interstate 25 projects and other smaller projects throughout Northern Colorado.
Residential construction also turned back up late in 2004, making 2004 one to remember in the construction industry. After being nearly equal in 1990, the value of residential construction is now 2.5 times the value of nonresidential construction. The monthly value of residential construction in early 2005 is over 10 times its level in 1990.
Two factors may cause demand for construction to slow. First, interest rates are increasing; how fast they increase will affect the health of the local economy. Second, growth in the national economy is slowing as manufacturing moves overseas and higher education budgets are reduced.
More positively, greater numbers of baby boomers are retiring and choosing Northern Colorado to spend their “golden years.” Entrepreneurs are stepping up to the plate and small businesses are proliferating.

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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