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

A SEVENTH INTEREST RATE CUT BY THE FEDERAL RESERVE WOULD HELP UTAH’S SMALL BUSINESSES

HIGHLIGHTS

• The Zions Bank Small Business Index for Utah was 96.3 in March 2008, down from a revised 97.0 in February 2008

• Utah’s unemployment rate was estimated at 3.0% in the latest month, unchanged from the prior month’s rate.  Total Utah employment is up an estimated 28,100 jobs during the past 12 months

• U.S. employment weakness suggests another interest rate cut later this month by the Federal Reserve, benefiting Utah’s small business sector

• The U.S. economy lost an estimated 80,000 net jobs in March.  Data for the two prior months was revised to show even larger job losses.  The U.S. unemployment rate rose sharply to 5.1%

A FED SEVENTH
Weak March employment data, combined with greater job losses in the two prior months, strongly suggest that the Federal Reserve will cut its key interest rate on or before April 30 for a seventh time.  The Fed has already sharply reduced its federal funds rate six times since September 2007 by a total of 3.00%, pushing the rate to a current level of 2.25%.

While an additional rate cut is currently expected by financial market participants, the size of the next likely cut is subject to debate.  Some suggest that the Fed will need to cut the rate by an aggressive 0.50%, pushing the rate to 1.75%.  Others suggest that a 0.25% cut to 2.00% is more likely, which allows the Fed greater flexibility later if needed.  Still others suggest the Fed will do nothing in late April.

It is important to note that the Fed does not know at this time what it may do on April 30.  If financial market anxiety diminishes and equity markets perform better, the Fed may stay on the sidelines.  Conversely, if financial markets freeze up further, or equity markets see major price declines, the Fed will be more aggressive. 

Financing costs are a component of the Small Business Index for Utah.  We assume that most small businesses are borrowers, with rate cuts reducing borrowing costs.

UTAH EMPLOYMENT
The Utah unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Utah—was estimated at 3.0% in the latest month, unchanged from the rate of the prior month.  The 3.0% rate compares to a 2.4% rate during the same month one year ago.  A higher Utah unemployment rate is a positive contributor to the Index as it implies increased access to Utah labor.

Utah’s unemployment rate averaged 2.6% in 2007, 2.9% in 2006, 4.3% in 2005, and 4.9% during the 2000-2004 period.  These rates compare to an average Utah unemployment rate of 3.5% between 1995 and 1999.

Total Utah employment rose by an estimated 28,100 jobs (up 2.3%) over the past 12 months.  This rise compares to a gain of 31,800 jobs in the prior year-over-year period.  The 2.3% rise still ranks as one of the strongest job growth rates in the nation.

Utah added a revised 47,800 jobs in 2007, 55,700 jobs in 2006, 43,700 jobs in 2005, and 30,200 jobs in 2004.  These totals compare to gains averaging 38,000 new jobs annually during the 1994-2000 period and a net loss of 1,300 jobs in 2001 through 2003.  More recently, weaker job gains, leading to lesser income creation and softer retail spending, have a negative impact upon Utah’s small businesses…and therefore, the Index.

The Zions Bank Small Business Index for Utah was 96.3 during March 2008, down from a revised 97.0 during February 2008.  The Index measures business conditions from the viewpoint of the Utah small business owner or manager.

LOCAL PERFORMANCE
Cache County employment grew by 1,100 jobs (2.3%) in the latest 12-month period.  The area’s jobless rate was 2.4%, up from the 2.2% rate of one year ago.

Weber County experienced job growth of 2,100 jobs (2.2%) from a year ago.  Joblessness registered 4.1%, up from the 3.5% unemployment rate one year ago.

Davis County payrolls expanded by 1,200 jobs (1.2%) in the past year.  The unemployment rate was 3.1% in the latest month, up from 2.7% one year ago.

Salt Lake County employment rose by 13,800 jobs (2.3%) over the year.  The county’s unemployment rate was 3.1% in the latest month, up from 2.7% last year.

Utah County employment grew by 3,800 jobs (2.1%) over the last 12 months.  The area’s jobless rate was 3.0%, up from the 2.7% rate of one year ago.

Washington County payrolls expanded by 1,300 jobs (2.5%) in the past year.  The unemployment rate was 3.8% in the latest month, up from 3.1% one year ago.

NATIONAL EMPLOYMENT
The U.S. Department of Labor reported a net decline of 80,000 jobs in March 2008, the worst monthly decline in five years, and below the consensus forecast of a loss of 60,000 jobs.  Previously reported employment losses for January and February 2008 were revised lower by a combined 67,000 jobs.  

The U.S. unemployment rate was 5.1% in March, up sharply from February’s 4.8% rate.  The current 5.1% jobless rate is the highest in more than two years.  The average hourly wage rose 0.3% (five cents) to $17.86 hourly, a rise of 3.6% over the past 12 months.

Goods-producing employment continued to decline in March, with a net loss of 93,000 jobs.  Manufacturing lost another 48,000 jobs, while construction employment fell by 51,000 positions.

Minimal service-providing employment led the way in March with a rise of 13,000 net new jobs.  The education & health services sector added 42,000 net new jobs during the month, while the leisure & hospitality and the government sectors each added 18,000 jobs. 

The professional & business services sector lost 35,000 jobs during the month.  The estimated net decline of 232,000 jobs during 2008’s first quarter was a painful contrast to the estimated rise of 241,000 net new jobs during 2007’s final quarter.

The April 2008 Zions Bank Small Business Index for Utah will be released on May 6, 2008.

©Copyright 2007 Thredgold Economic Associates