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 July 2, 1999

On The Economy: Economy remains hot, but slowing possible

The 1st Choice Bank/Northern Colorado Business Report Index of Leading Indicators is still flashing growth for the Northern Colorado economy over the next two years. The strong rate of growth experienced in 1998 appears to have continued in the first half of 1999. There is, however, some evidence that a period of slower growth looms on the horizon — not negative growth, just a slower rate of positive growth.

The National Association for Business Economics forecast panel is predicting 3.8 percent growth in the U.S. economy in 1999, followed by 2.5 percent in 2000, much stronger forecasts than just three months ago. They are also expecting inflation at 2 percent in 1999 and 2.4 percent in 2000. The national unemployment rate is expected to fall to 4.3 percent in 1999 and increase slightly to 4.5 percent in 2000. Labor shortages are expected to persist, keeping the unemployment rate relatively low but putting upward pressures on wages and prices.

The recent uptick in the energy sector helped boost the economies of the mountain states, including Colorado, said Creighton University Professor Dr. Ernie Goss. Dr. Goss reports that Colorado’s manufacturing sector improved significantly in the first quarter of 1999 over the fourth quarter of 1998. However, he said that in May both the construction and services sectors slowed significantly from levels enjoyed earlier this year. He hypothesizes that a labor shortage and bottlenecks in construction are now slowing growth in Colorado.

The Kansas City Federal Reserve Bank reports that Colorado is now the fastest-growing state in its district, but that the tight labor market is having an effect. They also state that Colorado’s biggest export market is the Pacific Rim and that the Asian economies are recovering, supplemented by rapid growth in Latin American markets. The world economy is now a $30 trillion market, and fast-track trade legislation is very important to negotiating larger export markets for U.S. and Colorado manufacturers.

Rapid growth continues in Northern Colorado, with our economy adding employees and new houses at breakneck speed.

Although employment growth in Northern Colorado continues, April numbers show signs of a slowdown. Recent mild winters, as well as housing and institutional construction, have kept employment growth strong. Employment in our economy is now 30 percent higher than it was in 1991 and will be 40 percent greater by the end of 2000. The unemployment rate is very low, and there are significant labor shortages in many sectors, especially those requiring an educated work force.

Some evidence exists that the unbelievable 1998 rate of increase in new single-family housing permits will continue through 1999.

The strong 1994 rate continued through 1995 and 1996, so there is a precedent. However, I’m skeptical and expect a slowdown in the fourth quarter, especially if the weather doesn’t cooperate.

The 1998 rate at which new permits were issued was four times higher than in 1991. The value of new permits being issued is leveling off, suggesting that builders are moving to lower-priced homes.

The total value of new construction, reported by F.W. Dodge, is increasing rapidly with contributions from new institutional construction in Fort Collins and regional highway improvements. The value of new construction is now four times higher per month than in 1991 and will be five times higher by the end of 2000.

The rate of increase in motor-vehicle registrations is slowing. The annual summer increase started earlier this year and, if sustained, might mean a substantial increase in motor vehicles in Northern Colorado in 1999. We now have 60 percent more motor vehicles on our streets and highways than in 1991, and that number will double during the decade of the 1990s. As each of us experiences every day, the capacity of our roads has not kept up with the increase in automobiles.

A recent study showed that Northern Colorado has a much higher amount of retail sales space per person than the rest of the country. This indicates that our retail sector is a regional center supporting a wider population. The number of new sales-tax accounts issued to Northern Colorado retailers is increasing rapidly, but this pace is forecasted to slow. The number of new accounts issued each month is now double the monthly rate in 1991.

Retail sales per month are now more than $600 million, more than $7 billion per year. This is double the 1991 rate and is not forecasted to slow.

The rate of increase in bankruptcies per 1,000 population is slowing but has not leveled off. The number of actual bankruptcies has broken below the trend line, indicating a significant slowing. But the current rate at which bankruptcies are being declared is well above the 1991 recession rate and is a serious drag on our economy.

The average rate of growth in the Northern Colorado economy dipped below zero twice in late 1998 and is forecasted to slow to 3.75 percent for the rest of 1999 and 2.75 percent in 2000. The index of growth shows that the Northern Colorado economy is growing more than twice as fast as it was in 1991. Growth in the region’s economy is forecasted to be very strong this summer with a sharp drop in the fourth quarter.

John Green is an economist with the U.S. Department of Agriculture and a faculty affiliate at Colorado State University in Fort Collins.

The 1st Choice Bank/Northern Colorado Business Report Index of Leading Indicators is still flashing growth for the Northern Colorado economy over the next two years. The strong rate of growth experienced in 1998 appears to have continued in the first half of 1999. There is, however, some evidence that a period of slower growth looms on the horizon — not negative growth, just a slower rate of positive growth.

The National Association for Business Economics forecast panel is predicting 3.8 percent growth in the U.S. economy in 1999, followed by 2.5 percent in 2000, much stronger forecasts than just three months…

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