Look for more growth in 2012, years ahead

The second half of 2011 was a period of very strong growth in the Northern Colorado economy. This growth was led by the construction sector, both residential and institutional, and a large reduction in the number of bankruptcies, undoubtedly caused by fewer foreclosures and underwater mortgages ending in bankruptcy. The housing sector and consumers, in general, are rapidly deleveraging and learning to live within a new spending equilibrium.

The annual monthly growth rate has been at or well above 20 percent for seven months through January. This degree of strength hasn't been seen since 1993, when the U.S. was coming out of the 1991-1992 recession. This strength is the result of very weak growth in the last half of 2010 and should carry through the first half of 2012 compared to the weaker first half of 2011. The growth rate will slow in the second half of 2012 compared to the second half of 2011.

The trend line in the Index of Economic Growth graph has turned up. The trend line is calculated using a filter that weights recent data more heavily and diminishes to zero for data more than two years old. So, when the trend line turns up, the data series is truly recovering. The Index increased uninterrupted from its base in 1991 through 2005, then dipped through 2009 before beginning its current recovery. The dip carried it back to 1998 levels so the current recovery is like starting from the condition the Northern Colorado economy was in in 1998. It's obvious the current recovery is going to be slower than the rate of growth from 1998 through 2005. So, it could be 2018 before the local economy climbs back to 2005 levels.

The U.S. economy is also recovering very slowly. Most economic indicators are positive and roughly 2 million jobs have been recovered from the more than 8 million lost to the Great Recession. We must add more than 1 million jobs each year just to accommodate new entrants to the labor force from high schools and colleges.

Stock market indices have all increased in the past few months and are showing no signs of retreating. This suggests that the U.S. economy will not dip for at least the next six months. If falling indices don't forecast a pullback in the U.S. economy, it could continue to grow slowly well into 2013.

Employment by place of residence (workers who live in Northern Colorado) looks very positive. Numbers are well above 2009 levels and the forecast looks like we could hit 2007-2008 levels in 2014, thus recovering all the jobs lost to the Great Recession. The trend line for unemployment peaked at about 8.4 percent and actual unemployment was just above 7 percent in January. The unemployment rate is unlikely to retreat back to the 4 percent level for several years.

The total value of construction being put in place in Northern Colorado is growing very nicely, adding well more than $50 million per month to gross regional product. The spring peaks in 2010 and 2011 were very strong, suggesting that the 2012 peak will be well above that of the past two years. We could soon be consistently adding more than $100 million per month to gross regional product.

Increasing numbers of single-family detached residential permits are being pulled, suggesting that the home construction sector is expanding. But the pace is excruciatingly slow. My colleagues in the real estate sector report that activity has really picked up in the past six months.

Total motor vehicle registrations increased very strongly in 2011, an amazing recovery from weakness in the Great Recession years. The forecast is for another good year in 2012 as the local economy continues to recover. The forecast also predicts an even stronger year in 2013 but it is unlikely that we can have three years of such strong expansion in a row. Additional vehicles put ever greater pressure on the adequacy of our road system.

Retail sales are almost back on the trend line from before the Great Recession. It's amazing how quickly retail sales have recovered from the effects of the downturn. Home values in Northern Colorado did not fall as much as they did in other parts of the U.S., so local consumers have not tightened their spending habits as much as expected. Home values are a major component of the consumer wealth picture and stable home values increase consumer confidence and spending. The Growth Index for retail sales is now back on its 20-year trend line and is likely to increase as fast as or faster than it did in the 1990s.

Bankruptcy news is as good as the increase in construction spending. The number of bankruptcies declared each month has fallen back to 2007 and 1996 levels. This drag on our economy is abating. Bankruptcies are currently about one per month for each 3,200 residents and the Index has again dropped below its 1991 base of 100.

The bottom line: The economy of Northern Colorado is expanding faster than the U.S. economy but slower than we are accustomed to and would like to see. The recovery in the retail sector is very strong and the construction engine is gaining speed.

A special note: Close readers will notice the absence of new and renewed sales tax account data. The Colorado Department of Revenue continues to stonewall me, saying, “We no longer produce that report.” I have contacted the Citizen Advocacy Office to no avail. That data has a significant moderating effect on the volatility of the Index of Economic Growth in Northern Colorado, reducing peaks and moderating dips. Small business retailers are a vital part of our economy and entrepreneurship in the retailing sector stimulates growth.

So, I'd like to ask my readers to help me. Email me and I will send you names and phone numbers of persons to contact and ask them to resume reporting the total numbers of new and renewed sales tax accounts each month for each county in Colorado. It's a simple sum of the applications for tax accounts that they receive. Or, alternatively, contact the Governor or the director of the Department of Revenue, if you know that person.



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.