Zions Bank Small Business Index for Idaho
June 2010 Release
July 7, 2010

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

IDAHO’S SMALL BUSINESSES WILL CONTINUE TO BENEFIT FROM RECORD LOW BORROWING COSTS

HIGHLIGHTS

• The Zions Bank Small Business Index for Idaho registered 97.9 in June 2010, unchanged from a revised 97.9 in May 2010

• Idaho’s unemployment rate was estimated at 8.8% in the most recent month, down from the 9.0% rate of the prior month. Idaho employment fell by an estimated 5,700 jobs during the past 12 months

• The Federal Reserve’s key short-term interest rate is expected to remain at a record low level well into 2011, benefiting Idaho’s small businesses that are net borrowers

• The U.S. economy lost an estimated 125,000 net jobs in June, in line with expectations. The loss of 225,000 temporary Census jobs was the culprit, with private businesses added 83,000 jobs during the month. The U.S. unemployment rate declined from 9.7% in May to 9.5% in June, as more than 650,000 people left the labor force

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RECORD LOW INTEREST RATES TO CONTINUE

The most important of all short-term interest rates—the federal funds rate—has been at a record low target level of 0.00% - 0.25% since mid-December 2008, a period of nearly 19 months. Given renewed domestic and global financial market anxiety about slowing economic growth, as well as high anxiety about sovereign (national) debt levels across Europe, the Federal Reserve will be in no hurry to push the federal funds rate higher.

Most forecasters now suggest that the Fed will delay any modest increase in the federal funds rate until sometime during 2011’s first half. Some economists suggest the rate will stay at its current level well into 2012.

Fortunately for the Fed, extremely low levels of consumer inflation allow it to remain on the sidelines for an extended period. In fact, many economists would suggest that the risk of deflation, or declining prices, is the greater threat to the U.S. and global economies as 2010’s second half begins.

The level of short-term interest rates is a component of the Idaho Small Business Index. The Index assumes that a majority of Idaho’s small businesses are net borrowers. While credit availability is a critical issue for many small businesses, the cost of such credit will remain historically low.

IN IDAHO

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 from the 9.0% rate of the prior month. The estimated 8.8% rate compares to the 7.7% 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. Other associated factors typically tied to a higher unemployment rate, such as lesser job creation, lesser income gains and lower retail sales, pull the Index lower.

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 5,700 jobs (down 0.9%) compares to a revised loss of 7,100 jobs in the prior year-over-year period. Idaho lost 34,500 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 had 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 125,000 jobs in June 2010, in line with economists’ expectations. However, the loss of 225,000 temporary Census jobs, as expected, was the primary reason for the decline. The rise of 83,000 jobs in the private sector was less than the 100,000 gain expected.

The U.S. unemployment rate declined from 9.7% in May to 9.5% in June, the lowest level of the past 12 months. However, the decline resulted primarily from more than 650,000 people—presumably less optimistic about finding a job—leaving the labor force. The current 9.5% jobless rate matches the 9.5% rate of one year ago and greatly exceeds the 5.5% rate of June 2008.

Goods-producing employment declined by 8,000 jobs in June. Manufacturing employment rose by 9,000 positions, while construction lost 22,000 jobs. Mining and logging employment rose by 5,000 jobs.

Private-sector service providing employment rose in June by 91,000 positions. The professional & business services sector gained 46,000 jobs, while the leisure & hospitality sector added 37,000 jobs. The education & health services sector added 22,000 positions in June. Overall government sector employment fell by 208,000 jobs during the month.

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.

The economy has now added an estimated 882,000 net new jobs this year, with roughly one-third of these jobs tied to the Census. An estimated 339,000 additional Census jobs will end in coming months, suggesting weak “headline” employment totals during summer months.

 

The July 2010 Zions Bank Small Business Index for Idaho will be released on August 11, 2010.

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

©Copyright 2010 Thredgold Economic Associates