Zions Bank: Small Business Index: THE U.S. RECESSION COULD CONTINUE THROUGHOUT 2009, HURTING UTAH’S SMALL BUSINESSES

Zions Bank Small Business Index for Utah
January 2009 Release
February 10, 2009

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

THE U.S. RECESSION COULD CONTINUE THROUGHOUT 2009, HURTING UTAH’S SMALL BUSINESSES

HIGHLIGHTS

The Zions Bank Small Business Index for Utah was 67.5 in January 2009, down from a revised 68.8 in December 2008

Utah’s unemployment rate was estimated at 4.3% in the latest month, up from the prior month’s 3.7% rate. Total Utah employment is down an estimated 24,600 jobs during the past 12 months

The current U.S. recession, which officially began in December 2007, could continue longer than the current consensus view of economists

The U.S. economy lost an estimated 598,000 net jobs in January, slightly exceeding economists’ expectations. In addition, job losses in November and December were revised higher by a combined 66,000 jobs. The U.S. unemployment rate rose to a 16-year high of 7.6%

U.S. ECONOMIC PAIN

American economic pain was widespread during 2008’s final quarter, with the overall economy contracting at a 3.8% real (after inflation) annual rate. The economy’s decline was the sharpest since the first quarter of 1982—a period of 26 years. GDP, or gross domestic product, is the broadest and most complete measure of the nation’s overall economic activity.

On the surface, the 3.8% annual rate of shrinkage was “good” news, since the consensus view of forecasting economists was for a 5.0%-5.5% real annual rate of decline. However, the lesser rate of decline occurred for the wrong reason (a rise in inventories of goods), one which actually suggests that the U.S. economy will be weaker in 2009’s first half than was the prior view. The 3.8% rate of decline followed a 0.5% real annual rate of decline during 2008’s third quarter.

The U.S. economy will likely be weaker statistically during the current quarter than was the view a couple of weeks ago. Current quarter weakness could reach a 5.0% real annual rate of decline.

The consensus of forecasting economists has recently suggested that a return to minimal U.S. economic growth could begin as early as 2009’s third quarter. However, recent U.S. economic data suggests that the current recession, now in its 15th month, could continue until near the end of 2009. More bearish forecasters suggest a recovery will not unfold until well into 2010.

If misery loves company the U.S. has plenty, with much of the developed world also in the tank. For the first time since WWII, the U.S., Europe, and Japan are in recession at the same time.

U.S. and global economic performance are components of the Small Business Index for Utah. As a result, weaker performance for both economies contributes to a lower Index measure.

UTAH EMPLOYMENT

The Utah unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Utah—was estimated at 4.3% in the latest month, up from the 3.7% rate of the prior month. The 4.3% rate compares to a 2.9% 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 3.4% during 2008, 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 declined by an estimated 24,600 jobs (down 1.9%) over the past 12 months. This decrease compares to a revised loss of 14,400 jobs in the prior year-over-year period. Utah added 8,300 jobs in 2008, 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, job losses, 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 67.5 during January 2009, down from a revised 68.8 during December 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 decreased by 300 jobs (-0.5%) in the latest 12-month period. The area’s jobless rate was 2.4%, up from the 2.0% rate of one year ago.

Weber County experienced a decrease of 1,800 jobs (-1.8%) from a year ago. Joblessness registered 4.2%, up from the 3.2% unemployment rate one year ago.

Davis County payrolls declined by 2,700 jobs (-2.6%) in the past year. The unemployment rate was 3.3% in the latest month, up from 2.6% one year ago.

Salt Lake County employment fell by 15,300 jobs (-2.5%) over the year. The county’s unemployment rate was 3.4% in the latest month, up from 2.6% last year.

Utah County employment declined by 6,000 jobs (-3.2%) over the last 12 months. The area’s jobless rate was 3.2%, up from the 2.3% rate of one year ago.

Washington County payrolls declined by 2,700 jobs (-5.0%) in the past year. The unemployment rate was 5.2% in the latest month, up from 3.0% one year ago.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net loss of 598,000 jobs in January 2009, the 13th monthly decline in a row. In addition, previously estimated job losses during November and December were revised higher by 66,000 jobs.

The U.S. unemployment rate jumped to 7.6% in January, the highest in 16 years. The current 7.6% jobless rate compares to the 4.9% rate of one year ago. Better news saw the average hourly wage rise 0.3% (five cents) to $18.46 hourly, a rise of 3.9% over the past 12 months.

Goods-producing employment continued to decline sharply in January, with a net loss of 319,000 jobs. Manufacturing employment fell by 207,000 positions, while construction lost another 111,000 jobs.

Service-providing employment also declined sharply in January by 279,000 positions. The professional & business services sector lost 121,000 jobs, while the leisure & hospitality sector lost 28,000 jobs. The retail trade sector lost 45,000 jobs in January. The education & health services sector added 54,000 positions in January, while the government sector added 6,000 jobs.

The revised net decline of nearly 3.0 million jobs during 2008 was the worst year since 1945. The sharp decline was also a painful contrast to the average annual gain of 1.9 million net new jobs during 2005 to 2007. Such losses are likely to build in coming months as the U.S. economy struggles with the worst recession in the post-WWII period.

The February 2009 Zions Bank Small Business Index for Utah will be released on March 10, 2009.

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