Zions Bank Small Business Index for Idaho
February 2010 Release
March 10, 2010

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

IDAHO'S SMALL BUSINESSES WILL CONTINUE TO BENEFIT FROM LOW FINANCING COSTS

HIGHLIGHTS

• The Zions Bank Small Business Index for Idaho registered 92.9 in February 2010, up from a revised 89.4 in January

• Idaho’s unemployment rate was estimated at 9.3% in the most recent month, up from the 9.1% rate of the prior month.  Idaho employment fell by an estimated 21,200 jobs during the past 12 months

• Idaho’s small business financing 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 36,000 net jobs in February, better than the 68,000 loss expected.  The data suggests a solid gain would have occurred, barring severe weather during much of February on the East Coast.  The U.S. unemployment rate remained at 9.7% in February

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SHORT-TERM INTEREST RATES LIKELY TO REMAIN LOW

The Federal Reserve’s modest increase in its largely symbolic discount rate on February 18 was perhaps the most visible sign yet that its “exit strategy” is well underway.  More moves to the exit will be undertaken in coming weeks and months, including the previously announced cessation in late March 2010 of its mammoth purchase of mortgage-backed securities. 

Note:  the Fed DID NOT change its much more important federal funds rate, which has been fixed in a target range of 0.00%-0.25% for the past 15 months.  In fact, the Fed reaffirmed again that this rate will remain unchanged for an “extended period.”  It is to this rate that most other short-term interest rates are related.

The Fed has been actively engaged in numerous economic and financial market life support programs since global financial markets froze up the first time in August 2007.  Such programs became more frequent as the U.S. and global economies faced nearly unprecedented challenges during the final few months of 2008. 

These imaginative and largely necessary programs all fell under the banner of “quantitative easing” and involved the Fed more than doubling the size of its balance sheet from roughly $800 billion to more than $2.2 trillion…all with newly created money.

A return of both U.S. and global economic growth in recent quarters has provided the Fed an opportunity to begin the process of reining in some of the massive monetary stimulus that provided support to the U.S. economy during the Great Recession…the longest, most painful, most costly, and most pervasive since the Great Depression.

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 9.3% in the most recent month, up from the revised 9.1% rate of the prior month.  The estimated 9.3% rate compares to the 6.7% 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 8.0% in 2009, 4.9% in 2008, 3.0% in both 2006 and 2007, and 3.7% in 2005.  By comparison, the Idaho jobless rate averaged 4.9% between 2000 and 2004, and 5.5% during the 1990 to 1999 period.

The latest 12-month decline in Idaho employment estimated at 21,200 jobs (down 3.5%) compares to a revised loss of 29,800 jobs in the prior year-over-year period.  Idaho lost 38,900 jobs in 2009, lost 6,100 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 36,000 jobs in February 2010, less painful than the 68,000 loss expected.  Two severe and lengthy storms along the East Coast distorted the employment data.  Many economists suggest the economy might have added as many as 230,000 jobs during the month without the weather disruptions.  The data suggests that March could see a sizable net gain in employment when the data is reported on April 2, 2010.  

The U.S. unemployment rate remained at 9.7% in February 2010.  The current 9.7% jobless rate compares to the 8.2% rate of one year ago and is more than double the 4.8% rate of February 2008. 

Goods-producing employment continued to decline in February, with a net loss of 60,000 jobs.  Manufacturing employment actually rose by 1,000 positions, the second monthly gain in a row, while construction lost another 64,000 jobs, many weather-related. 

Service-providing employment rose in February by 42,000 positions.  The professional & business services sector gained 51,000 jobs (mostly “temp” jobs), while the retail trade sector added 400 jobs.  Government employment fell by 18,000 jobs (all state and local jobs), while the education & health services sector added 32,000 positions in February.

The U.S. economy suffered a net decline of 3.6 million jobs during 2008, the worst year since 1945.  The loss of 4.8 million jobs during 2009 easily surpassed the 2008 total.  The net decline of 8.4 million jobs is a painful contrast to the average gain of 1.9 million net new jobs annually during 2005 to 2007.  Modest job gains and occasional losses could be reported in coming months as the U.S. economy continues to emerge from the worst recession in the post-Depression period. 

 

The March 2010 Zions Bank Small Business Index for Idaho will be released on April 7, 2010.

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

©Copyright 2009 Thredgold Economic Associates