Zions Bank Small Business Index for Utah
September 2009 Release
October 6, 2009

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

RECORD LOW INTEREST RATES HELP UTAH’S SMALL BUSINESSES IN WEAK ECONOMY

HIGHLIGHTS

• The Zions Bank Small Business Index for Utah was 70.6 in September 2009, down slightly from a revised 70.8 in August 2009

• Utah’s unemployment rate was estimated at 6.0% in the latest month, unchanged from the prior month.  Total Utah employment fell an estimated 55,400 jobs during the past 12 months

• Small business borrowing 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 263,000 net jobs in September, more than the 180,000 decline expected.  Job losses in July and August were revised to show 13,000 more positions eliminated.  The U.S. unemployment rate rose to 9.8% in September, a 26-year high, from 9.7% in August

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FINANCING COSTS TO REMAIN LOW FOR “AN EXTENDED PERIOD”

The Federal Reserve, the nation’s central bank, reported on September 23 that it plans to keep its key short-term interest rate—the federal funds rate—at a record low target level of 0.00%-0.25% for “an extended period” in order to help the U.S. economy and financial markets stabilize.  The rate first reached the current record low during mid-December 2008, the last in a series of interest rate cuts which began in September 2007.

Forecasting economists expect the rate to remain at current levels well into 2010.  Some economists suggest the federal funds rate could remain unchanged during all of next year.

In addition, the Fed noted that it will continue to purchase mortgage-backed securities through March 2010 as a means of helping long-term mortgage rates remain low.  Such purchases have been successful as 30-year fixed-rate mortgages for conventional loans have averaged 5.00% during the past three weeks, a six-month low.

Federal Reserve Chairman Ben Bernanke also acknowledged in recent days that the Fed will be diligent in “exiting” its unprecedented monetary stimulus during the next few years in order to keep inflation pressures under control.  To many Fed critics, this massive expansion of money creation, combined with mind-boggling budget deficits, will lead to a huge increase in inflation in coming years.

Financing costs are a component of the Utah 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.

UTAH EMPLOYMENT

The Utah unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Utah—was estimated at 6.0% in the latest month, unchanged from the prior month.  The 6.0% rate compares to a 3.4% 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 3.4% during 2008, 2.7% in 2007, 3.0% in 2006, 4.1% 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 fell by an estimated 55,400 jobs (down 4.4%) over the past 12 months.  This decrease compares to a revised loss of 53,300 jobs in the prior year-over-year period.  Utah added 1,900 jobs in 2008, 49,600 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. 

LOCAL PERFORMANCE

Cache County employment decreased by 2,600 jobs (-5.3%) in the latest 12-month period.  The area’s jobless rate was 4.3%, up from the 2.7% rate of one year ago.

Weber County experienced a decrease of 5,200 jobs (-5.4%) from a year ago.  Joblessness registered 6.8%, up from the 4.2% unemployment rate one year ago.

Davis County payrolls declined by 4,300 jobs (-4.2%) in the past year.  The unemployment rate was 5.4% in the latest month, up from 3.3% one year ago.

Salt Lake County employment fell by 29,300 jobs (-4.8%) over the year.  The county’s unemployment rate was 5.9% in the latest month, up from 3.4% last year.

Utah County employment declined by 9,400 jobs (-5.1%) over the last 12 months.  The area’s jobless rate was 5.5%, up from the 3.2% rate of one year ago.

Washington County payrolls declined by 2,700 jobs (-5.2%) in the past year.  The unemployment rate was 7.7% in the latest month, up from 5.0% one year ago.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net loss of 263,000 jobs in September 2009, the 21st monthly decline in a row, and more than the estimated loss near 180,000 jobs.  Previously reported job losses during July and August were revised to show the net loss of 13,000 more jobs.  The U.S. economy has now lost 7.2 million jobs since the “Great Recession” began in December 2007, with more than half of the losses during 2009’s first nine months.

The U.S. unemployment rate rose to 9.8% in September, a 26-year high, versus 9.7% in August.  The current 9.8% jobless rate compares to the 6.2% rate of one year ago and is more than double the 4.7% rate of September 2007.  The average hourly wage rose 0.1% (one cent) to $18.67 hourly, a rise of 2.5% during the past 12 months.

Goods-producing employment continued to decline in September, with a net loss of 116,000 jobs.  Manufacturing employment fell by 51,000 positions, while construction lost another 64,000 jobs. 

Service-providing employment also declined in September by 147,000 positions.  The professional & business services sector lost 8,000 jobs, while the retail trade sector lost 39,000 jobs in September.  The government sector lost 53,000 jobs, while the education & health services sector added 3,000 positions in September.

The net decline of 3.1 million jobs during 2008 was the worst year since 1945.  The loss of 4.1 million jobs during 2009’s first nine months has already surpassed the 2008 total.  The net decline of 7.2 million jobs is a painful contrast to the average gain of 1.9 million net new jobs annually during 2005 to 2007.  Job losses are expected to lessen in coming months as the U.S. economy likely continues to emerge from the worst recession in the post-Depression period.  Most forecasters see the recession now concluding, with a consensus view that positive GDP will be achieved during 2009’s second half and throughout 2010.

 

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

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

©Copyright 2009 Thredgold Economic Associates