Zions Bank: Small Business Index: MORE SIGNS OF A LIKELY RETURN TO U.S. ECONOMIC GROWTH BEFORE YEAR-END

Zions Bank Small Business Index for Idaho
April 2009 Release
May 13, 2009

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

MORE SIGNS OF A LIKELY RETURN TO U.S. ECONOMIC GROWTH BEFORE YEAR-END

HIGHLIGHTS

The Zions Bank Small Business Index for Idaho registered 65.2 in April 2009, down from a revised 68.8 in March 2009

Idaho’s unemployment rate was estimated at 7.0% in the most recent month, unchanged from the revised 7.0% rate of the prior month. Idaho employment declined by an estimated 33,600 jobs during the past 12 months

More signs of a return to positive U.S. economic growth, perhaps by late summer, have become apparent. Improved U.S. economic performance would be a very positive development for the nation’s small business sector

The U.S. economy lost an estimated 539,000 net jobs in April, the best performance since October 2008. However, reported job losses in February and March were revised higher by 66,000 positions. The U.S. unemployment rate rose to a 25-year high of 8.9%

SIGNS OF LIFE?

The American economy (GDP) contracted at a 6.1% real (after inflation) annual rate during 2009’s first quarter, very close to the 6.3% real annual rate of decline during the prior quarter. That’s where the similarity ends.

While the fourth quarter’s various economic components were almost all lackluster, the more recent data had numerous elements of optimism as to where the U.S. economy goes from here. The overall message is that this painful and extended recession has about run its course, with a return to positive if modest U.S. economic growth expected by late summer.

Consumer spending, which represents 70% of all U.S. economic activity, actually rose at a 2.2% annual rate during the first quarter, after declining sharply during the two prior quarters. Overall government spending actually fell in the first quarter (reducing GDP), led by declines in defense spending and reduced state and local spending. However, government spending will surge in coming quarters as the $787 billion economic stimulus program kicks in, adding to economic growth.

Businesses slashed capital spending and sharply reduced inventories of goods during the first quarter, both subtracting from first quarter GDP. Each decline, however, suggests stronger economic performance in coming quarters.

The consensus of forecasting economists sees a roughly 2.0% real annual rate of decline during the current quarter, with a return to slightly positive growth during the third quarter. U.S. economic growth is expected to strengthen during 2009’s final quarter, as well as throughout 2010.

Stronger U.S. economic growth is a positive contributor to the Index. A return to U.S. economic growth would lead to stronger regional performance, also leading the Index higher. Both factors would contribute to improving business conditions for Idaho’s 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 7.0% in the most recent month, unchanged from the revised 7.0% rate of the prior month. The estimated 7.0% rate compares to the 4.3% 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 4.9% in 2008, 3.0% in both 2006 and 2007, 3.7% in 2005, and 4.9% during the period 2000-2004. By comparison, the Idaho jobless rate averaged 5.5% during the 1990-99 period.

The latest 12-month decline in Idaho employment estimated at 33,600 jobs (down 5.2%) compares to a revised loss of 29,100 jobs in the prior year-over-year period. Idaho lost 6,500 jobs during 2008, added an average of 22,300 jobs annually during 2005 to 2007, and gained an average of 7,100 jobs annually during the 2001-2004 period.

These totals 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, have a negative impact upon Idaho’s small businesses…and therefore, the Index.

The Zions Bank Small Business Index for Idaho was 65.2 during April 2009, down from a revised 68.8 during March 2009. 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 539,000 jobs in April 2009, the 16th monthly decline in a row. Previously estimated job losses during February and March were revised to show the loss of another 66,000 jobs. The U.S. economy has now lost 5.7 million jobs since the recession began in December 2007, with nearly half of the losses during the past four months alone.

The U.S. unemployment rate jumped to 8.9% in April, the highest in 25 years, versus 8.5% in March. The current 8.9% jobless rate compares to the 5.0% rate of one year ago. The average hourly wage rose one cent to $18.51 hourly, a rise of 3.2% over the past 12 months.

Goods-producing employment continued to decline sharply in April, with a net loss of 270,000 jobs. Manufacturing employment fell by 149,000 positions, while construction lost another 110,000 jobs.

Service-providing employment also declined sharply in April by 269,000 positions. The professional & business services sector lost 122,000 jobs, while the leisure & hospitality sector lost 44,000 jobs. The retail trade sector lost 47,000 jobs in April. The education & health services sector added 15,000 positions in April, while the government sector added 72,000 jobs, mostly in preparation for the 2010 census.

The net decline of nearly 3.1 million jobs during 2008 was the worst year since 1945. The sharp decline was also a painful contrast to the average gain of 1.9 million net new jobs annually during 2005 to 2007. Such job losses are likely to continue in coming months as the U.S. economy struggles with the worst recession in the post-WWII period. Note, however, that most forecasters see the recession concluding before the end of the year.

The May 2009 Zions Bank Small Business Index for Idaho will be released on June 10, 2009.

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