Zions Bank Small Business Index for Idaho
May 2008 Release
June 11, 2008

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

WEAKNESS IN NEW HOME CONSTRUCTION HURTS MANY OF IDAHO’S SMALL BUSINESSES

Highlights

• The Zions Bank Small Business Index for Idaho registered 74.5 in May 2008, up from a revised 72.0 in April 2008

• Idaho’s unemployment rate was estimated at 3.6% in the most recent month, up sharply from the 3.1% rate of the prior month.  Idaho employment rose by an estimated 1,200 jobs during the past 12 months

• Much of Idaho’s small business sector is being negatively impacted by the weakness in new home construction within the state

• The U.S. economy lost an estimated 49,000 net jobs in May, in line with expectations.  The U.S. unemployment rate jumped to 5.5% in May from 5.0% in April, the largest monthly rise in 22 years

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Housing Pain

It is certainly no secret that weakness in the nation’s home building and home resale markets is one of the two most worrisome economic developments of the past 12 months.  The other major issue involves domestic and global credit markets which continue to perform poorly or actually “freeze up” at times, a victim of high levels of lender and investor anxiety.

Four “highflying” states (Arizona, California, Florida, and Nevada) accounted for much of the overbuilding during 2003 to 2006.  These states also attracted most of the home “flippers” (out-of-state investors with $$ signs in their eyes) who bid prices to extreme levels during those same years.  Each of these states is now in, or flirting with, its own recession and declining home values.

Many other states also saw home builders add too aggressively to housing inventories.  As a result, home building activity has fallen across the U.S. to the weakest level since the early 1990s.  Such new home construction weakness has also impacted the Idaho economy.

While many Idaho homes are built by large companies, many small businesses are also involved in the home construction sector, acting as builders, architects, engineers, suppliers, home furnishers, landscapers, etc.  Many of these firms have struggled.  In addition, other non-housing businesses that had benefited in recent years from solid income gains of construction workers have also struggled.

The level of new housing permits is a component of the Zions Bank Small Business Index for Idaho.  A decline in the level of home building pulls the Index lower. 

Idaho Employment

The Idaho unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Idaho—was estimated at 3.6 % in the most recent month, up sharply from the 3.1% rate of the prior month.  The estimated 3.6% rate exceeds the 2.7% 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 1990-1999 period.

The latest 12-month rise in Idaho employment estimated at 1,200 jobs (up 0.2%) compares to a revised gain of 1,700 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.

National Employment

The U.S. Department of Labor reported a net decline of 49,000 jobs in May 2008, the fifth monthly decline in a row, and slightly less than the consensus view of a loss of 60,000 jobs.  Losses of the two prior months, however, were revised to even greater losses by a combined 15,000 jobs. 

The U.S. unemployment rate jumped to 5.5% in May, up sharply from April’s 5.0% rate.  The 0.5% rise was the largest monthly rise since February 1986.  The 5.5% rate is also the highest since October 2004.  

Much of the increase seems tied to faulty seasonal adjustments which did not accurately account for teenagers entering the labor force as schools ended classes.  A lower unemployment rate in June is entirely likely when the data is reported on July 3.    

The current 5.5% jobless rate compares to a 4.5% rate of one year ago.  The average hourly wage rose 0.3% (five cents) to $17.94 hourly, a rise of 3.5% over the past 12 months.

Goods-producing employment continued to decline in May, with a net loss of 57,000 jobs.  Construction employment fell by 34,000 positions, while manufacturing lost another 26,000 jobs.

Service-providing employment was weak in May with a rise of only 8,000 net new jobs.  The education & health services sector added 54,000 net new jobs during the month, while the professional & business services sector lost 39,000 jobs.  The government sector added 17,000 net new jobs during the month, while the leisure & hospitality sector added 12,000 jobs. 

The estimated net decline of 324,000 jobs during 2008’s first five months was a painful contrast to the average rise of 734,000 net new jobs during the first five months of 2006 and 2007.  However, the average loss of 65,000 jobs monthly during 2008’s first five months is roughly one-third of the 181,000 average monthly job losses during the 2001 recession.

The June 2008 Zions Bank Small Business Index for Idaho will be released on July 9, 2008.

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

©Copyright 2008 Thredgold Economic Associates