Zions Bank: Small Business Index: U.S. ECONOMIC GROWTH DURING 2008’S 1ST QUARTER IS A GOOD SIGN FOR UTAH’S SMALL BUSINESSES

Zions Bank Small Business Index for Utah
April 2008 Release
May 6, 2008

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

U.S. ECONOMIC GROWTH DURING 2008’S 1ST QUARTER IS A GOOD SIGN FOR UTAH’S SMALL BUSINESSES

Highlights

The Zions Bank Small Business Index for Utah was 92.1 in April 2008, down from a revised 92.5 in March 2008

Utah’s unemployment rate was estimated at 3.3% in the latest month, up from the prior month’s 3.0% rate. Total Utah employment is up an estimated 26,200 jobs during the past 12 months

Stronger-than-expected U.S economic growth during 2008’s first quarter is a positive sign for Utah’s small business sector

The U.S. economy lost an estimated 20,000 net jobs in April, a much smaller loss than feared. The U.S. unemployment rate declined slightly to 5.0%

Recession Debate

U.S. economic growth during 2008’s first quarter registered a 0.6% real (inflation adjusted) annual rate, slightly stronger than economist expectations. The modest 0.6% growth pace matched that of the prior quarter.

The fact that the U.S. economy actually grew during the January to March period raises uncertainty levels again as to whether the U.S. economy is in a recession. Estimates for current quarter performance range from a 1.0% annual real rate of decline to a 1.0% real annualized gain, with most estimates around a flat growth pace. Most estimates for 2008’s second half see positive growth. The modest first quarter U.S. economic growth pace also reduces fears of a deep and prolonged U.S. recession.

The simplistic definition of recession is two consecutive quarters of negative economic growth. U.S. recessions are formally measured by the National Bureau of Economic Research, typically 6-10 months after the fact.

The first quarter’s meager growth pace was led by rising exports. Consumer spending was weak, while real estate investment was very soft. Exports grew at a 5.5% annual pace during the quarter. Consumer spending, which represents more than 70% of the U.S. economy, grew at a 1.0% annual rate, the weakest growth since 2001. Residential construction spending fell at an annual rate of 27.0%, the largest rate of decline since 1981.

The performance of the U.S. economy is a component of the Small Business Index for Utah. U.S. economic strength or weakness gives an indication as to external developments that impact the Utah economy, with U.S. economic growth having a positive influence on Utah small business performance.

A seventh interest rate cut by the Federal Reserve on April 30 will also positively impact the Utah economy. The Small Business Index assumes that the majority of Utah’s small businesses are net borrowers. Hence, their financing costs will decline again.

Utah Employment

The Utah unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Utah—was estimated at 3.3% in the latest month, up from the 3.0% rate of the prior month. The 3.3% 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 2.7% in 2007, 3.0% in 2006, 4.2% 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 26,200 jobs (up 2.1%) over the past 12 months. This rise compares to a gain of 28,800 jobs in the prior year-over-year period. The 2.1% rise still ranks as one of the strongest job growth rates in the nation.

Utah added 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 92.1 during April 2008, down from a revised 92.5 during March 2008. The Index measures business conditions from the viewpoint of the Utah small business owner or manager.

A lower Index number is associated with less favorable business “conditions” for Utah’s small businesses. The Index uses 100.0 for calendar year 1997 as its base year. The Index includes revisions to various historical and new forecast components as they become available.

Local Performance

Cache County employment grew by 1,100 jobs (2.3%) in the latest 12-month period. The area’s jobless rate was 2.5%, up from the 2.0% rate of one year ago.

Weber County experienced job growth of 2,200 jobs (2.4%) from a year ago. Joblessness registered 4.0%, up from the 3.1% unemployment rate one year ago.

Davis County payrolls expanded by 600 jobs (0.6%) in the past year. The unemployment rate was 3.1% in the latest month, up from 2.5% one year ago.

Salt Lake County employment rose by 12,600 jobs (2.1%) over the year. The county’s unemployment rate was 3.1% in the latest month, up from 2.6% last year.

Utah County employment grew by 4,000 jobs (2.1%) over the last 12 months. The area’s jobless rate was 3.1%, up from the 2.5% rate of one year ago.

Washington County payrolls expanded by 1,100 jobs (2.1%) in the past year. The unemployment rate was 3.8% in the latest month, up from 3.0% one year ago.

National Employment

The U.S. Department of Labor reported a net decline of 20,000 jobs in April 2008, the fourth monthly decline in a row. The 20,000 net job loss, however, was much better than the consensus forecast of a loss of 75,000 jobs.

The U.S. unemployment rate was 5.0% in April, down slightly from March’s 5.1% rate. The current 5.0% jobless rate compares to a 4.5% rate of one year ago. The average hourly wage rose only 0.1% (one cent) to $17.88 hourly, the smallest gain in two years, and a rise of 3.4% over the past 12 months.

Goods-producing employment continued to decline in April, with a net loss of 110,000 jobs. Construction employment fell by 61,000 positions, while manufacturing lost another 46,000 jobs.

Service-providing employment led the way in April with a rise of 90,000 net new jobs. The education & health services sector added 52,000 net new jobs during the month, while the professional & business services sector added 39,000 jobs.

The leisure & hospitality sector added 18,000 net new jobs, while the government sector added 9,000 jobs. The estimated net decline of 260,000 jobs during 2008’s first four months was a painful contrast to the estimated rise of 374,000 net new jobs during 2007’s first four months.

The May 2008 Zions Bank Small Business Index for Utah will be released on June 10, 2008.

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