Note to Editors: Martin Shields is an associate professor of economics at Colorado State University. His research on Northern Colorado’s economy is sponsored by a partnership between the Northern Colorado Economic Development Corporation and CSU’s Office of Economic Development.
Last Thursday’s report that Gross Domestic Product growth was weaker than expected, and the revised report that GDP actually declined in late 2007, confirms what lots of people have believed for quite some time – the U.S. economy is almost certainly in a recession.
A number of factors have led to the current situation. The housing market crisis has rocked the nation’s financial sector, making credit hard to obtain for even the most solvent businesses and individuals. Meanwhile, airlines are sputtering, automakers are idling thousands of workers, and record gas prices are fueling price increases across the board.
While families have been feeling the squeeze for months, too many economists and policy makers are only now coming to grips with the pervasiveness of what is going on. And no, it is not simply a "mental recession," as one deposed Presidential campaign aid suggested.
When does the recovery begin?
At the risk of sounding like gloomy Gus, current economic events suggest no quick turnaround. The main concern is that the recent GDP report is buoyed by two trends that may not be sustainable.
First, nearly $100 billion in federally issued stimulus checks led to a surge in consumer spending, which grew by an estimated 1.5 percent. However, as the effects of the stimulus dissipate, households remain confronted with stagnant incomes and heavy debt loads. Consumer spending, especially on durable goods, such as cars and appliances, will likely slow.
Second, the declining dollar has boosted the competitiveness of U.S. manufacturers abroad, and exports grew at an annual 9.2 percent rate for the second quarter. But there are rising fears of economic downturns in Europe and elsewhere, which could dampen overseas demand for U.S. products.
There is no sugarcoating. The rest of 2008 is going to be rough for the national economy.
Are all recessions local?
In northern Colorado things are not as bad, but they could be better. For example, the housing market in Larimer County has not suffered as much as it has elsewhere, although new residential construction is off significantly.
Further, while the unemployment rate is increasing, and Bennigan’s Monte Cristo sandwiches are now permanently off the menu, preliminary numbers show the county’s non-farm employers added about 1,800 jobs over the past 12 months. Some of this growth is due to an increase in primary jobs, which have finally surpassed their 2001 levels.
(You might wonder how unemployment rates can increase when there are more jobs. This happens when the labor force grows faster than the rate of job creation. Email me for a more technical discussion).
Because of the diversity of the local economy, Colorado State University’s stabilizing presence, the region’s highly skilled workforce, and a collection of promising industry clusters, I expect the regional economy to continue to outperform the state and nation.
Yet the ruthlessness of global competition requires local leaders to proactively enhance competitive advantages. When times are tough and resources are scarce, thoughtful regional economic development efforts remain good investments.