Economy poised to change with positive signs visible

The biggest economic question on everyone’s mind right now is: Are we at the bottom of the Great Recession yet? There are some positive signs, although the most important sign, increased employment, has not materialized.

On Jan. 29, the first estimate of 2009 fourth quarter U.S. GDP growth came in at 5.7 percent. My estimate had been something over 5 percent, and there will be two more corrections before we have a final figure. The Wall Street Journal says GDP growth would have been only 2.3 percent if inventory restocking were subtracted.

Just as inventory overstocking was a part of GDP growth in the past, inventory restocking must be now. We know that overstocking was a mistake because of the recession but we don’t know yet about restocking. If consumer spending rebounds strongly and goods production picks up, restocking inventories will not have been a mistake. Stay tuned.

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Business Cares: May 2024

As Mental Health Awareness Month unfolds in Colorado, it serves as a reminder of the collective responsibility to prioritize mental well-being.

So, we can say the American Recovery and Reinvestment Act is working. Economic activity occurred; jobs were saved or, in a few cases, added and inventories were drawn down to the point where they had to be replenished. Some of the stimulus money will be spent in 2010 (approximately 40 percent remains), so the economy is unlikely to fall back into recession until at least late in 2010, if then.

Technical analysis is saying that all three major stock market indices are poised for a major correction in the range of 15 percent to 25 percent. Technical analysis is not always correct, but we’ll know by the end of March.

March is the month the Federal Reserve says it might start tightening up on the money supply and March is when government incentives to buy homes or refinance mortgages are scheduled to expire. So, the end of the first quarter will be a good time to take stock of where the U.S. economy is headed.

Stock market indices are good leading indicators, usually six to nine months ahead of turns in the economy. Sometimes they give false signals, but they hardly ever give strong negative signals when the economy doesn’t at least pause and appear to weaken. The turnaround in the indices last March preceded the increases in GDP in the third and fourth quarters; a smaller increase in the third quarter and then, as economic momentum increased, a larger increase in the fourth quarter.

If the three major market indicators correct by 12 percent or more in the first half of 2010, the U.S. economy may double-dip back into recession at the end of the year or early in 2011. If the indices don’t correct by that amount, economic growth will stagger along into 2011. If the indices turn up, U.S. economic growth will continue strong into 2011.

We are at a turning point as we wait for the Federal Reserve to withdraw the enormous amount of liquidity in the financial system and for financial regulation to take shape.

Local effects

What does this mean to Northern Colorado business planners and government budget balancers? If the outlook remains bright, businesses will make investments. Leprino Foods will finish construction of its plant in Greeley, begin hiring for permanent jobs – and the demand for milk will increase. Demand for Vestas blades will increase and layoffs will be reversed. Other businesses will be more confident of future sales and will make investment and hiring decisions.

Government budget officers will be more confident of future tax revenues and will stop cutting services and infrastructure maintenance. Education can look forward to smaller class sizes and expansion of reduced student programs.

Employment in Northern Colorado dropped lower than forecasts in December, indicating that the bottom forecasted in November has been breached. We are still losing jobs, down to 268,000 in December from a high of almost 290,000 in 2008. As a result, the unemployment rate jumped to 7.1 percent in December, well above the 6.4 percent forecasted.

The December value of construction put in place in Northern Colorado came in at $40 million, well above the forecast of about $15 million. I think we can attribute some of this to stimulus funds and the resultant infrastructure maintenance.

Total motor vehicle registrations in December were 40,000, well below the forecast of about 46,000. Vehicles are not being replaced as they wear out and registrations for extra vehicles are not being renewed. Consumers and businesses are still tightening their belts in this area.

December new and renewed sales tax accounts were 379, well above the forecast of about 280. Retail entrepreneurs are showing some confidence in future business conditions.

It appears the Obama Administration’s Keynesian stimulation policies have at least temporarily halted the downturn. Because of the increasing size of the federal budget deficit, further stimulus spending will be hard to justify.

Thus, the next increase in economic activity will have to be consumer based. We have seen some mild pickup in consumer spending but it will have to be maintained and increased significantly if we are to continue to recover from the current recession.

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.

Other articles from the Feb. 12 issue:

Heli-One ready for jobs, work liftoff

Local firm acquired by global helicopter maintenance outfit

Centerra feels the need, the need for high-speed

FRII partnership makes McWhinney sites Web-ready

Million delivers letters of interest

Water districts write in support of Green River pipeline project

‘Success comes to those in front of the inevitable’

Chad McWhinney talks about growth, future opportunities

Midtown study starts with Foothills Malls question

Findings to be presented at March meeting

Estes Park faces future with no urban renewal authority

Voters repeal EPURA financing by 61 percent vote

Marijuana dispenser contemplates regulation

Wild West scene needs to be cleaned up with clear rules

Bank interest growing – acquisition interest, that is

Stressed assets now prime targets for takeovers, mergers

Android dreams of expanded apps

Open-source rewrites business model for all mobile computing