Employment increases while bankruptcies decrease

The Northern Colorado Business Report Index of Leading Indicators is very strong, but only because of the positive effect of fewer bankruptcies than in the same months of 2005. Economic growth has ranged from 8 percent to 17 percent in the first four months of 2006 but would have been in the 0 to 3.5 percent range without the boost from fewer bankruptcies. The index of economic growth in Northern Colorado is leveling off, an effect that hasn’t happened since before 1991.

Growth in the national economy started off 2006 at a slower pace but accelerated to finish the quarter very strong. Many economists, including myself, see much slower growth in the second half of 2006 as higher interest rates take hold and construction and investment slow.

Employment in Northern Colorado is rebounding very nicely from a relatively flat growth year in 2005. The unemployment rate is dropping because employment is growing faster than the labor force, good news for the unemployed. The growth index for employment is the steadiest of the seven economic indicators that I track, good for our economy’s health since overall economic growth depends primarily on growth in jobs and employment.

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The total value of construction being put in place in Northern Colorado is very strong, looking like it might surpass the boom year of 2004. It is strong, however, only because of strength in the nonresidential construction sector. National economic deficits, a very large federal highway bill with numerous pork projects, state Referendum C spending, and strong commercial construction are the saviors of the construction sector, even as interest rates increase and residential construction slows. The construction sector has been growing strongly since 1992, without interruption.

The number of single-family detached housing permits being pulled each month peaked in 2002, remained level until 2004, but has been decreasing since. Last year was not a very strong year and 2006 is sure to be much weaker. Even the value of new single-family permits has leveled off despite ever-bigger houses and rapid increases in construction material costs.

Motor vehicle registrations continue to increase but at a slower rate since 2002. This statistic depends primarily on new residents, attributable to either new employment or more retired persons, but new car sales are also an important component.

New sales-tax accounts issued to Northern Colorado retailers peaked in 2003 and have decreased significantly since then. The peak was at about 525 new accounts each month but has slowed to less than 450 per month.

Retailing entrepreneurs are not as optimistic about the future of the Northern Colorado economy as they were just three years ago.

The value of retail sales continues to increase, as expected, since retail sales include gasoline sales. Construction materials and household furnishings have also increased rapidly in price; causing much concern on the part of the Federal Reserve that overall price inflation is increasing too rapidly. Look for more Fed discount rate increases because of their concern about inflation.

Monthly bankruptcies are one-third to one-half lower than they were for the same months of 2005. Since tighter bankruptcy legislation went into effect in October 2005, this series has been seeking a new equilibrium. Business owners should be seeing lower rates on their insurance to cover bad debts.

Economic growth is currently strong in Northern Colorado, but there are warning signs in the data. Commercial and institutional construction is carrying our economy right now, but higher interest rates and any sign of weakness in the national economy will have negative effects. Residential construction will probably not recover for several years, although home prices are not likely to decrease. There is currently a large supply of unsold homes on the market, putting pressure on price increases.

The developing health-care cluster in Northern Colorado continues to expand rapidly, a regional energy industry is trying to establish itself, our large regional retail cluster continues to expand, and our cities and economic development agencies are searching for other regional clusters to support.

The economic future looks good in Northern Colorado, just not as good as the 1990s.

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.