Regional indicators show slow growth ahead

The Northern Colorado Business Report Annual Monthly Growth Rate was negative from July to December 2010 but moved above zero in January. I think the decline of economic activity in Northern Colorado has halted and that 2011 and 2012 will show slow, but modest, growth. But it’s hard to tell.

I am currently having significant data problems. The year-over-year October change looks especially bad, and the weakness in the July-December data has caused the forecast for 2011 and 2012 to decline. But that may have been caused by erroneous sales tax account data released by the state.

The Department of Revenue is computerizing or upgrading several of its data collection processes. The upgrade process for new and renewed sales tax accounts started in October, causing a partial-month low number which has not been corrected. No data has been released for subsequent months, either. The retail sales accounting process is also being revised, resulting in no new data since October. I hope these processes will be complete before I report economic indicators in July.

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So, we need to look at the current Growth Index and Growth Rate with some suspicion. I have used an econometric technique to estimate the missing values, but it was developed using historical data and will not pick up turning points in the statistics. I will not comment further on the data series that are under revision here.

National economy

The U.S. economy is growing slowly but that growth looks very shaky. Attempts to reduce the deficit while the economy is growing so slowly are likely to push the country back into recession.

Reductions in local, state and federal employment will reduce consumer spending, the main driving force for economic growth. Higher gasoline and food prices and lower home values will have the same effect. Political gridlock will reduce consumer confidence, reinforcing trends toward more saving and less spending. Conflict over workers’ rights that began in Wisconsin may spread to other states. The outlook for the Mideast and our energy-dependent nation do not look bright for the rest of 2011. The pessimism will be felt in Northern Colorado.

Employment

The state is currently revising employment data using the 2010 population census. Revisions for 2010 are reflected in my data, but revisions going back to 2000 will have to wait until July.

The decline in employment in Northern Colorado has probably bottomed and should be increasing very slowly. Leprino is interviewing workers to start later this year and other major and minor employers are slowly hiring. Some sectors, including all levels of government, are reducing employment. CSU has indicated that it may reduce faculty positions because of lower levels of state support, while at the same time increasing tuition as much as 20 percent, another blow to consumer balance sheets.

Unemployment numbers in Northern Colorado took a big jump as a result of state revisions to employment and labor force data. The labor force has been reduced, resulting in higher unemployment percentages. The labor force is the numerator of the fraction where the number unemployed (unchanged) is the denominator.

Motor vehicle registrations

Motor vehicle registrations picked up in 2010, probably because of strong new car sales and slightly better business conditions. The number of registrations in 2010 almost reached higher 2006 and 2008 levels. 2007 and 2009 were weak years. 2011 numbers should surpass 2008 peaks.

Construction

The total value of construction put in place in Northern Colorado was about the same in the second half of 2010 as in the same period in 2009. Thus, the boost to our economy from construction activity has stalled out. The effects of the federal stimulus money have dissipated. There is some commercial construction in Greeley and a large multi-unit apartment project in Larimer County balancing a slower residential construction market.

The number of new single-family detached housing permits issued in Northern Colorado in 2010 did increase slightly over 2009, probably as a result of government incentives. The 2010 increase was very small and our economy will struggle to repeat it in 2011.

Growth

Economic growth in Northern Colorado appears to have stalled over the winter. The weather has not been severe enough to stall construction and other economic activity so this slowdown is ominous. I hope economic activity will pick back up as we progress through spring and summer.

State and local government budget problems, however, are not reflected in current statistics and may exert a significant drag on future economic activity. Industrial construction and production, along with healthy energy and health-care sectors, may pull our economy a little further out of the Great 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.