Indicators point to recovery, growth in 2012

Editor’s note: Because of technical issues, an incorrect version of this column appeared in the Jan. 20-26 edition of the Business Report.

Continuing the message from the last quarterly update of economic data for Northern Colorado, the Northern Colorado Business Report Annual Monthly Growth Rate was strongly positive in September and October. The strongest of the seven indicators were big increases in new single family detached housing construction, construction in general and a large reduction in the number of bankruptcies filed. A reduction in bankruptcies is positive for the economy because it reduces the drag they cause on consumer spending and business operations.

The Index of Economic Growth in Northern Colorado was almost as high in August as it was in July. September and October numbers were well above the same months in 2010 but below summer numbers. The trend line has turned up, signaling that the bottom has been set for the Great Recession in Northern Colorado. The Growth Index is more than double its size in the base year of 1991 but one-third less than in 2004/2005.

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The U.S. economy is in a holding pattern, not shrinking but not creating enough jobs to lower the unemployment rate. Thousands of unemployed persons are dropping out of the labor force, thus reducing the unemployment rate. Meanwhile, the number of homeless people increase and households continue to consolidate. The deadlock in Washington and the European crisis mean that 2012 will not be a strong growth year for the U.S. economy. The stock market is signaling this condition by mostly moving sideways.

The Northern Colorado economy is adding jobs, causing the trend line in the employment graph to flatten. It should soon turn up. Job growth by place of residence was strong in September and October and Christmas hiring should provide another boost in November and December. The number of Northern Colorado residents who are employed should move above the 280,000 level, up from a bottom of about 264,000 in 2010 but well below the peak of 290,000 reached in 2007.

The unemployment rate dropped about one percentage point from July to October, both because employment increased and because discouraged workers dropped out of the labor force. I still think the unemployment rate will hang around in the 6-7 percent range for most of 2012, although if our economy continues to improve it could drop below six percent. The Growth Index for Employment shows that we have already lost two years of employment growth and we will undoubtedly lose another two years before employment is back to 2008 levels.

The total value of construction put in place in Northern Colorado was high in July and August but sunk in September and October. The trend line has bottomed and should soon turn up. Intrayear peaks and lows from 2010 to 2011 have both been higher, suggesting that Northern Colorado is climbing out of recession lows. The Growth Index for Construction hit lows just above the 1991 baseline and are now at levels seen in the mid-1990s.

Single family detached housing construction is slowly recovering; the summer months were well above 2010 levels. Activity is back to 2008 levels. The trend line has turned up after bottoming in early 2010. Single family housing construction is adding about $35 million dollars to 2011 Northern Colorado Gross Regional Product. The Growth Index is at 1991 levels, having created a 20-year cycle that peaked in 2004/2005.

Total motor vehicle registrations were up strongly in both Larimer and Weld Counties in almost every month since March. This reflects both new vehicles sales and more vehicles being registered to facilitate the growth in the local economy. This is a very positive sign for the health of our economy. The Growth Index is at all-time highs.

It is amazing how quickly retail sales have recovered in Northern Colorado. Retail sales are back on their pre-recession growth path and, I suspect, the trend line will be back on this trajectory after the Christmas buying season. I expect Christmas sales to be very strong in Northern Colorado. I calculate that the recession has cost Northern Colorado retailers at least $225 million in lost sales. The summer of 2011 was the best summer for retail sales since 1987, the year I started keeping statistics, probably the best year ever.

Bankruptcies have dropped drastically in the past two years, after hitting very high levels in April 2010. Current numbers are back to 2004 levels, just before the Bankruptcy Act of 2005 was passed by Congress. Northern Colorado is currently experiencing, each month, about one bankruptcy for each 2,500 residents.

So, the recession is over in Northern Colorado and the recovery is well under way. We can expect growth to continue in 2012, maybe even at the pace we experienced in the 1990s.