Region’s economy on rocky road to recovery

The Northern Colorado economy is recovering but not at a very steady pace.

The Northern Colorado Business Report Index of Leading Indicators was strongly negative in January because of a big jump in bankruptcies, mildly positive in February, strongly positive in March because of a big jump in construction of single-family homes, and, finally, negative in April because of another jump in bankruptcies. Bankruptcies are increasing as job losses cause home foreclosures and result in personal bankruptcies.

The stock market is signaling sluggish growth in the U.S. economy as world financial difficulties sort themselves out. The U.S. stock market, Treasury securities and gold were the safe havens during the Greece-EU financial crisis but concern over that situation is abating. The world economies are still deleveraging and while this continues, credit will remain tight as balance sheets are restructured and fear diminishes.

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I’m wondering what the next economic/financial crisis will be and whether it will be domestic or foreign.

As the U.S. financial markets become more and more of a safe haven, the value of the dollar strengthens. This is not good for exports but does make the cost of imports cheaper. It would be better if the dollar would weaken, making imports more expensive and exports more competitive. This situation would cause manufacturing to move back to the United States and provide jobs for the 10 percent to 20 percent of our labor force that is unemployed.

Local outlook good

The outlook for the Northern Colorado economy is good. Greeley and Weld County are on schedule to add more than 1,000 primary jobs in the next three to five years as a three-phase Leprino Foods cheese factory gets under way and JBS moves Pilgrim’s Pride management to Greeley and brings its transportation division in-house. In addition, Vestas continues to receive orders for new blades. These primary jobs will stimulate at least another 1,000 secondary jobs. Even if the U.S. economy grows sluggishly, I don’t think growth in the Northern Colorado economy will be slowed significantly.

Employment

Job losses in the Northern Colorado economy have ended as new job prospects have brightened. The spring increase in employment is stronger than in spring 2009 but weaker than most years in the 2000s. The unemployment rate peaked at about 8.3 percent and fell to 7.5 percent in April.

Construction

The total value of construction being put in place is increasing, strengthened by the more than a 50 percent increase in single-family residential construction. Federal homebuying subsidies have been very successful in stimulating the demand for under-$280,000 homes in Northern Colorado. There is currently a very tight supply of these homes available. This demand will weaken temporarily since the federal subsidies have ended, but I expect demand to strengthen again as job prospects improve.

Motor vehicle registrations

Total motor vehicle registrations are showing a mild recovery as late 2009 registrations were above similar numbers from 2008 and early 2010 registrations are significantly higher than early 2009 numbers. Residents are again buying and registering vehicles as business improves and job losses end.

Retail sales

New and renewed sales tax accounts issued early in 2010 are showing a very nice increase. Retail businesses and entrepreneurs are not exuberant but they are showing some confidence in the strength of the local economy. The decline in the value of retail sales has bottomed and is showing a mild increase over 2009 so far in 2010. Consumer spending will slowly increase as consumer confidence builds and new jobs open up.

Bankruptcies

The big disappointment in the local economy is the dramatic increase in bankruptcies – January and April saw large increases. I do think home foreclosures have peaked for this housing cycle so the pressure of home mortgage delinquencies on the bankruptcy rate should diminish. Bankruptcies declared per 1,000 population are now nearly one per thousand and easily at their highest rate this century (except for the abnormal jump caused by the Bankruptcy Act of 2005). Hopefully, new job prospects will cause some relief for these residents in financial distress.

The Northern Colorado economy is recovering from its worst recession since at least the 1980s. The local economic recovery will be stronger than the national recovery and much less uneven. Near-term job openings will be in primary industries, a very desirable basic economic foundation signaling longer run stability.

John W. Green, Ph.D., 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.