Zions Bank Small Business Index for Idaho
September 2009 Release
October 7, 2009

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

RECORD LOW INTEREST RATES HELP IDAHO’S SMALL BUSINESSES IN WEAK ECONOMY

HIGHLIGHTS

• The Zions Bank Small Business Index for Idaho registered 74.0 in September 2009, down from a revised 74.5 in August 2009

• Idaho’s unemployment rate was estimated at 8.8% in the most recent month, down from the 8.9% rate of the prior month.  Idaho employment declined by an estimated 36,200 jobs during the past 12 months

• Small business borrowing costs are likely to remain extremely low as the Federal Reserve shows no immediate signs of an interest rate boost

• The U.S. economy lost an estimated 263,000 net jobs in September, more than the 180,000 decline expected.  Job losses in July and August were revised to show 13,000 more positions eliminated.  The U.S. unemployment rate rose to 9.8% in September, a 26-year high, from 9.7% in August

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FINANCING COSTS TO REMAIN LOW FOR “AN EXTENDED PERIOD”

The Federal Reserve, the nation’s central bank, reported on September 23 that it plans to keep its key short-term interest rate—the federal funds rate—at a record low target level of 0.00%-0.25% for “an extended period” in order to help the U.S. economy and financial markets stabilize.  The rate first reached the current record low during mid-December 2008, the last in a series of interest rate cuts which began in September 2007.

Forecasting economists expect the rate to remain at current levels well into 2010.  Some economists suggest the federal funds rate could remain unchanged during all of next year.

In addition, the Fed noted that it will continue to purchase mortgage-backed securities through March 2010 as a means of helping long-term mortgage rates remain low.  Such purchases have been successful as 30-year fixed-rate mortgages for conventional loans have averaged 5.00% during the past three weeks, a six-month low.

Federal Reserve Chairman Ben Bernanke also acknowledged in recent days that the Fed will be diligent in “exiting” its unprecedented monetary stimulus during the next few years in order to keep inflation pressures under control.  To many Fed critics, this massive expansion of money creation, combined with mind-boggling budget deficits, will lead to a huge increase in inflation in coming years.

Financing costs are a component of the Idaho Small Business Index, with an assumption that most small businesses are net borrowers.  As a result, extremely low financing costs are a positive contributor to the Index.

IDAHO EMPLOYMENT

The Idaho unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Idaho—was estimated at 8.8% in the most recent month, down slightly from the 8.9% rate of the prior month.  The estimated 8.8% rate compares to the 5.0% 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 36,200 jobs (down 5.5%) compares to a loss of 33,500 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.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net loss of 263,000 jobs in September 2009, the 21st monthly decline in a row, and more than the estimated loss near 180,000 jobs.  Previously reported job losses during July and August were revised to show the net loss of 13,000 more jobs.  The U.S. economy has now lost 7.2 million jobs since the “Great Recession” began in December 2007, with more than half of the losses during 2009’s first nine months.

The U.S. unemployment rate rose to 9.8% in September, a 26-year high, versus 9.7% in August.  The current 9.8% jobless rate compares to the 6.2% rate of one year ago and is more than double the 4.7% rate of September 2007.  The average hourly wage rose 0.1% (one cent) to $18.67 hourly, a rise of 2.5% during the past 12 months.

Goods-producing employment continued to decline in September, with a net loss of 116,000 jobs.  Manufacturing employment fell by 51,000 positions, while construction lost another 64,000 jobs. 

Service-providing employment also declined in September by 147,000 positions.  The professional & business services sector lost 8,000 jobs, while the retail trade sector lost 39,000 jobs in September.  The government sector lost 53,000 jobs, while the education & health services sector added 3,000 positions in September.

The net decline of 3.1 million jobs during 2008 was the worst year since 1945.  The loss of 4.1 million jobs during 2009’s first nine months has already surpassed the 2008 total.  The net decline of 7.2 million jobs is a painful contrast to the average gain of 1.9 million net new jobs annually during 2005 to 2007.  Job losses are expected to lessen in coming months as the U.S. economy likely continues to emerge from the worst recession in the post-Depression period.  Most forecasters see the recession now concluding, with a consensus view that positive GDP will be achieved during 2009’s second half and throughout 2010.

 

The October 2009 Zions Bank Small Business Index for Idaho will be released on November 11, 2009.

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

©Copyright 2009 Thredgold Economic Associates