Zions Bank: Small Business Index: UTAH'S SMALL BUSINESSES WILL CONTINUE TO BENEFIT FROM LOW FINANCING COSTS

Zions Bank Small Business Index for Utah
February 2010 Release
March 9, 2010

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

UTAH'S SMALL BUSINESSES WILL CONTINUE TO BENEFIT FROM LOW FINANCING COSTS

HIGHLIGHTS

The Zions Bank Small Business Index for Utah was 91.3 in February 2010, up from a revised 90.8 in January 2010

Utah’s unemployment rate was estimated at 6.8% in the latest month, up from the 6.7% rate of the prior month. Total Utah employment fell an estimated 35,300 jobs during the past 12 months

Utah’s small business financing 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 36,000 net jobs in February, better than the 68,000 loss expected. The data suggests a solid gain would have occurred, barring severe weather during much of February on the East Coast. The U.S. unemployment rate remained at 9.7% in February

SHORT-TERM INTEREST RATES LIKELY TO REMAIN LOW

The Federal Reserve’s modest increase in its largely symbolic discount rate on February 18 was perhaps the most visible sign yet that its “exit strategy” is well underway. More moves to the exit will be undertaken in coming weeks and months, including the previously announced cessation in late March 2010 of its mammoth purchase of mortgage-backed securities.

federal funds rate

Note: the Fed DID NOT change its much more important federal funds rate, which has been fixed in a target range of 0.00%-0.25% for the past 15 months. In fact, the Fed reaffirmed again that this rate will remain unchanged for an “extended period.” It is to this rate that most other short-term interest rates are related.

The Fed has been actively engaged in numerous economic and financial market life support programs since global financial markets froze up the first time in August 2007. Such programs became more frequent as the U.S. and global economies faced nearly unprecedented challenges during the final few months of 2008.

These imaginative and largely necessary programs all fell under the banner of “quantitative easing” and involved the Fed more than doubling the size of its balance sheet from roughly $800 billion to more than $2.2 trillion…all with newly created money.

A return of both U.S. and global economic growth in recent quarters has provided the Fed an opportunity to begin the process of reining in some of the massive monetary stimulus that provided support to the U.S. economy during the Great Recession…the longest, most painful, most costly, and most pervasive since the Great Depression.

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 6.8% in the latest month, up from 6.7% during the prior month. The 6.8% rate compares to a 4.6% 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 5.7% during 2009, 3.4% in 2008, 2.7% in 2007, and 3.0% in 2006. These rates compare to an average Utah unemployment rate of 5.0% during the 2001 to 2005 period, and an average 3.5% rate between 1995 and 2000.

Total Utah employment fell by an estimated 35,300 jobs (down 2.9%) over the past 12 months. This decrease compares to a loss of 34,700 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.

The Zions Bank Small Business Index for Utah was 91.3 during February 2010, up from a revised 90.8 during January 2010. The Index measures business conditions from the viewpoint of the Utah small business owner or manager.

A higher Index number is associated with more 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 900 jobs (-1.9%) in the latest 12-month period. The area’s jobless rate was 4.7%, up from the 3.2% rate of one year ago.

Weber County experienced a decrease of 3,200 jobs (-3.5%) from a year ago. Joblessness registered 7.6%, up from the 5.2% unemployment rate one year ago.

Davis County payrolls declined by 100 jobs (-0.1%) in the past year. The unemployment rate was 6.1% in the latest month, up from 4.0% one year ago.

Salt Lake County employment fell by 17,100 jobs (-3.0%) over the year. The county’s unemployment rate was 6.4% in the latest month, up from 4.0% last year.

Utah County employment declined by 5,000 jobs (-2.8%) over the last 12 months. The area’s jobless rate was 6.3%, up from the 4.0% rate of one year ago.

Washington County payrolls declined by 1,700 jobs (-3.5%) in the past year. The unemployment rate was 8.7% in the latest month, up from 6.1% one year ago.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net loss of 36,000 jobs in February 2010, less painful than the 68,000 loss expected. Two severe and lengthy storms along the East Coast distorted the employment data. Many economists suggest the economy might have added as many as 230,000 jobs during the month without the weather disruptions. The data suggests that March could see a sizable net gain in employment when the data is reported on April 2, 2010.

The U.S. unemployment rate remained at 9.7% in February 2010. The current 9.7% jobless rate compares to the 8.2% rate of one year ago and is more than double the 4.8% rate of February 2008.

Goods-producing employment continued to decline in February, with a net loss of 60,000 jobs. Manufacturing employment actually rose by 1,000 positions, the second monthly gain in a row, while construction lost another 64,000 jobs, many weather-related.

Service-providing employment rose in February by 42,000 positions. The professional & business services sector gained 51,000 jobs (mostly “temp” jobs), while the retail trade sector added 400 jobs. Government employment fell by 18,000 jobs (all state and local jobs), while the education & health services sector added 32,000 positions in February.

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. Modest job gains and occasional losses could be reported in coming months as the U.S. economy continues to emerge from the worst recession in the post-Depression period.

The March 2010 Zions Bank Small Business Index for Utah will be released on April 6, 2010.

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