Zions Bank: Small Business Index: SLUGGISH U.S. ECONOMIC GROWTH CONTINUES TO IMPACT IDAHO SMALL BUSINESSES

Zions Bank Small Business Index for Idaho
July 2008 Release
August 6, 2008

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

SLUGGISH U.S. ECONOMIC GROWTH CONTINUES TO IMPACT IDAHO SMALL BUSINESSES

Highlights

The Zions Bank Small Business Index for Idaho registered 73.7 in July 2008, unchanged from a revised 73.7 in June 2008

Idaho’s unemployment rate was estimated at 4.1% in the most recent month, up from the 3.8% rate of the prior month. Idaho employment declined by an estimated 2,600 jobs during the past 12 months

U.S. economic growth during 2008’s second quarter was a less-than-expected 1.9% real annual rate. Growth for the two prior quarters was also revised downward

The U.S. economy lost an estimated 51,000 net jobs in July, fewer than expected. The U.S. unemployment rate rose to 5.7%, a four-year high

Growth Weaker Than Expected

The U.S. economy grew at a real (inflation adjusted) annualized rate of 1.9% in the second quarter of 2008, a somewhat disappointing reading as most forecasts were expecting growth of around 2.3%. Gross domestic product (GDP) growth was propped up during the quarter by the economic stimulus rebate checks and by booming export activity.

Measures for GDP in the two prior quarters were also revised lower. First quarter growth was revised down slightly to a 0.9% real annual rate from the previously reported 1.0% growth pace. Of greater concern was the downward revision to growth in the final quarter of 2007. The latest report shows that the economy actually contracted at a 0.2% real annual rate during the fourth quarter, adding fuel to the recession debate. Prior GDP measures for this quarter had shown growth of 0.6%.

One element of good news in this latest GDP report showed that business inventories shrank during the second quarter. Since GDP is a measure of what is produced in an economy rather than what is sold, growth should be positively impacted in future quarters by a ramp-up in production to replace inventories. Even so, economic growth in the final half of 2008 will likely slow as the stimulus effect of the rebate checks begins to wane. We expect stronger growth to return by mid-2009.

U.S. economic growth (GDP) is a component of the Idaho Small Business Index. Slower growth or contraction in the U.S. economy negatively impacts Idaho small businesses.

Idaho Employment

The Idaho unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Idaho—was estimated at 4.1% in the most recent month, up from the 3.8% rate of the prior month. The estimated 4.1% rate exceeds the 2.3% 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 decline in Idaho employment estimated at 2,600 jobs (down 0.4%) compares to a revised loss of 900 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, employment declines, 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 73.7 during July 2008, unchanged from a revised 73.7 during June 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 loss of 51,000 jobs in July 2008, the seventh monthly decline in a row. Economists had expected even larger job losses for the month. Revisions for May and June showed 26,000 fewer jobs lost than previously reported.

The U.S. unemployment rate climbed 0.2% in July to 5.7%, the highest since March 2004. The current 5.7% jobless rate is a full 1.0% higher than the 4.7% rate of one year ago. The average hourly wage rose 0.3% (six cents) to $18.06 hourly, a rise of 3.4% over the past 12 months.

Goods-producing employment continued to decline in July, with a net loss of 46,000 jobs. Construction employment fell by 22,000 positions, while manufacturing lost another 35,000 jobs.

Service-providing employment also declined in July by 5,000 positions. The education & health services sector added 39,000 net new jobs during the month, while the professional & business services sector lost 24,000 jobs. The government sector added 25,000 net new jobs during the month, while the trade, transportation, & utilities sector lost 39,000 jobs.

The estimated net decline of 463,000 jobs during 2008’s first seven months was a painful contrast to the average annual gain of 1.9 million net new jobs during 2005 to 2007. However, the average loss of 66,000 jobs monthly during 2008 was much less painful than the 181,000 average monthly job loss during the 2001 recession.

The August 2008 Zions Bank Small Business Index for Idaho will be released on September 10, 2008.

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