Zions Bank: Small Business Index:U.S. ECONOMIC GROWTH DURING 2008’S 1ST QUARTER IS A GOOD SIGN FOR IDAHO’S SMALL BUSINESSES

Zions Bank Small Business Index for Idaho
April 2008 Release
May 7, 2008

Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Zions Bank

U.S. ECONOMIC GROWTH DURING 2008’S 1ST QUARTER IS A GOOD SIGN FOR IDAHO’S SMALL BUSINESSES

Highlights

The Zions Bank Small Business Index for Idaho registered 73.2 in April 2008, down from a revised 75.0 in March 2008

Idaho’s unemployment rate was estimated at 3.1% in the most recent month, up from the 3.0% rate of the prior month. Idaho employment rose by an estimated 900 jobs during the past 12 months

Stronger-than-expected U.S economic growth during 2008’s first quarter is a positive sign for Idaho’s small business sector

The U.S. economy lost an estimated 20,000 net jobs in April, a much smaller loss than feared. The U.S. unemployment rate declined slightly to 5.0%

Recession Debate

U.S. economic growth during 2008’s first quarter registered a 0.6% real (inflation adjusted) annual rate, slightly stronger than economist expectations. The modest 0.6% growth pace matched that of the prior quarter.

The fact that the U.S. economy actually grew during the January to March period raises uncertainty levels again as to whether the U.S. economy is in a recession. Estimates for current quarter performance range from a 1.0% annual real rate of decline to a 1.0% real annualized gain, with most estimates around a flat growth pace. Most estimates for 2008’s second half see positive growth. The modest first quarter U.S. economic growth pace also reduces fears of a deep and prolonged U.S. recession.

The simplistic definition of recession is two consecutive quarters of negative economic growth. U.S. recessions are formally measured by the National Bureau of Economic Research, typically 6-10 months after the fact.

The first quarter’s meager growth pace was led by rising exports. Consumer spending was weak, while real estate investment was very soft. Exports grew at a 5.5% annual pace during the quarter. Consumer spending, which represents more than 70% of the U.S. economy, grew at a 1.0% annual rate, the weakest growth since 2001. Residential construction spending fell at an annual rate of 27.0%, the largest rate of decline since 1981.

The performance of the U.S. economy is a component of the Small Business Index for Idaho. U.S. economic strength or weakness gives an indication as to external developments that impact the Idaho economy, with U.S. economic growth having a positive influence on Idaho small business performance.

A seventh interest rate cut by the Federal Reserve on April 30 will also positively impact the Idaho economy. The Small Business Index assumes that the majority of Idaho’s small businesses are net borrowers. Hence, their financing costs will decline again.

In Idaho

The Idaho unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Idaho—was estimated at 3.1% in the most recent month, up from the 3.0% rate of the prior month. The estimated 3.1% rate exceeds the 2.8% rate of one year ago. A higher Idaho unemployment rate is a positive for the Index as it implies greater labor availability for Idaho’s small businesses.

The Idaho jobless rate averaged an estimated record low of 2.6% in 2007, 3.4% in 2006, 3.9% in 2005, and 5.0% during the period 2000-2004. By comparison, the Idaho jobless rate averaged 5.6% during the 1990-99 period.

The latest 12-month rise in Idaho employment estimated at 900 jobs (up 0.1%) compares to a revised gain of 3,300 jobs in the prior year-over-year period. Idaho added 17,200 jobs in 2007, 27,100 jobs in 2006, 23,400 net new jobs in 2005, and an average of 7,100 jobs annually during the 2001-2004 period.

These totals also compare to gains averaging 17,600 net new jobs annually during the 1991-2000 period. More recently, weaker job growth, leading to slower income creation and softer retail spending, has a negative impact upon Idaho’s small businesses…and therefore, the Index.

The Zions Bank Small Business Index for Idaho came in at 73.2 during April 2008, down from a revised 75.0 during March 2008. The Index measures business conditions from the viewpoint of the Idaho small business owner or manager.

A lower Index number is associated with less favorable business “conditions” for Idaho’s small businesses. The Index uses 100.0 for calendar year 1997 as its base year. The Index also includes revisions to various historical and new forecast components as they become available.

National Employment

The U.S. Department of Labor reported a net decline of 20,000 jobs in April 2008, the fourth monthly decline in a row. The 20,000 net job loss, however, was much better than the consensus forecast of a loss of 75,000 jobs.

The U.S. unemployment rate was 5.0% in April, down slightly from March’s 5.1% rate. The current 5.0% jobless rate compares to a 4.5% rate of one year ago. The average hourly wage rose only 0.1% (one cent) to $17.88 hourly, the smallest gain in two years, and a rise of 3.4% over the past 12 months.

Goods-producing employment continued to decline in April, with a net loss of 110,000 jobs. Construction employment fell by 61,000 positions, while manufacturing lost another 46,000 jobs.

Service-providing employment led the way in April with a rise of 90,000 net new jobs. The education & health services sector added 52,000 net new jobs during the month, while the professional & business services sector added 39,000 jobs.

The leisure & hospitality sector added 18,000 net new jobs, while the government sector added 9,000 jobs. The estimated net decline of 260,000 jobs during 2008’s first four months was a painful contrast to the estimated rise of 374,000 net new jobs during 2007’s first four months.

The May 2008 Zions Bank Small Business Index for Idaho will be released on June 11, 2008.

Jeff Thredgold
Thredgold Economic Associates
Economic Consultant to Zions Bank
(801)614-0403