Construction, retail sectors approach bottom

Historically, the construction industry has been the primary engine of the Northern Colorado economy. But we’ve not had a decrease in consumer spending such as we’re seeing now, at least not in the 22 years I’ve been tracking Northern Colorado economic conditions.

Consumer spending makes up about 70 percent of dollars spent on products measured in Gross Domestic Product and, in the case of Northern Colorado, Gross Regional Product. Some of these dollars are spent by constructors for materials that go into the buildings that homebuyers spend yet more dollars on. So the health of the construction industry and the retail trade sector are closely intertwined.

We can measure the current status of our economy by looking at current conditions in the construction and retail trade sectors.

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Let’s look first at the construction sector since it collapsed first. From 1987 through 1993, growth in the construction sector in Northern Colorado was almost all in Larimer County and was pretty constant at about 100 to 150 new projects per month.

The 13 years from 1994 to 2006 saw a very healthy and expanding construction industry in Northern Colorado. In 1994, the number of new construction projects jumped significantly in Larimer County and less significantly in Weld County. The number of projects started increasing more rapidly in Weld County in 1996 and 1997 and then really accelerated in the early 2000s.

The number of new construction projects in Weld County surpassed Larimer County in 2000 as a result of slowing growth in Larimer County in the late 1990s. Weld County was the engine of growth in the construction sector from 2000 to 2008. By 2005, there were 500 to 600 new projects starting each month in Northern Colorado.

However, in 2006 the sector started slowing rapidly. In that year there were maybe 300 new projects per month and by the end of 2007 this had dropped to 150 new projects per month. In 2008, the average was about 100 per month and so far in 2009 it has been about 75 to 100 per month, dropping below 50 for a couple of months early in the year.

At the peak in 2005, new construction projects were contributing about $200 million per month to Gross Regional Product, now it’s about $30 million to $35 million per month, a more than 80 percent decrease. That’s a lot of dollars and jobs lost in the Northern Colorado economy.

Arrows in the nearby graph show these general movements. The graph also shows that conditions in the construction sector have leveled off lower than in the late 1980s. But there have been some recent signs of new growth in the sector. I don’t expect growth to be dramatic but I do think we have established a bottom in the sector and can look forward to a slow expansion in the number of new projects initiated each month.

Retail picture

The picture in the retail trade sector is one of slower growth, more sustained over longer sub-periods, and the sector took longer to collapse. Growth from 1987 to 1993 was moderate, about what we would expect from a region that is slowly adding population. Growth accelerated from 1994 to 2002 and then picked up speed from 2003 to 2008. Christmas season sales were growing faster than summer peak sales as shown in the nearby graph. In the summer of 2008, retail sales growth decreased for the first time since before I began tracking these statistics in 1987.

Retail sales in Larimer and Weld counties weren’t that different until about 1995. Sales increased faster in Larimer County until about 2002 when Weld County began catching up. By 2005 sales in the two counties weren’t that different again. Since the slowdown began in 2008, Weld County seems to have been affected more than Larimer County.

Retail sales in Northern Colorado were about $250 million per month in 1987, doubling to about $500 million per month by 1995. Sales were pushing $800 million per month by 2000 and peaked at about $1.1 billion per month in 2007 and early 2008. They are averaging $900 million to $1 billion per month so far in 2009.

The decrease in retail sales hasn’t been as dramatic as the contraction of the construction industry, but it has still been in the 10 percent to 20 percent range. There are no solid signs yet that the decrease in retail sales has bottomed. I expect sales this Christmas season to be 1 percent to 3 percent less than last year.

The slowdown in the two most important sectors in the Northern Colorado is very nearly over. How long these sectors remain near their lows is yet unknown, but I don’t expect any significant recovery until 2011. The alternative energy and health sectors will have to lead our economy out of this recession and growth in these sectors is only beginning to accelerate. Let’s hope cheap natural gas will not delay the expansion of the sector.

John W. Green is a regional economist who compiles the Northern Colorado Business Report’s Index of Leading Economic Indicators. He can be reached at jwgreen@frii.com.