Zions Bank: Small Business Index: SOLID U.S. JOB GAINS A POSITIVE SIGN FOR UTAH'S SMALL BUSINESS SECTOR

Zions Bank Small Business Index for Utah
June 2010 Release
July 6, 2010

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

UTAH’S SMALL BUSINESSES WILL CONTINUE TO BENEFIT FROM RECORD LOW BORROWING COSTS

HIGHLIGHTS

The Zions Bank Small Business Index for Utah was 105.8 in June 2010, up from a revised 103.4 in May 2010

Utah’s unemployment rate was estimated at 7.3% in the latest month, unchanged from a revised 7.3% rate of the prior month. Total Utah employment grew an estimated 900 jobs during the past 12 months

The Federal Reserve’s key short-term interest rate is expected to remain at a record low level well into 2011, benefiting Utah’s small businesses that are net borrowers

The U.S. economy lost an estimated 125,000 net jobs in June, in line with expectations. The loss of 225,000 temporary Census jobs was the culprit, with private businesses added 83,000 jobs during the month. The U.S. unemployment rate declined from 9.7% in May to 9.5% in June, as more than 650,000 people left the labor force

RECORD LOW INTEREST RATES TO CONTINUE

The most important of all short-term interest rates—the federal funds rate—has been at a record low target level of 0.00% - 0.25% since mid-December 2008, a period of nearly 19 months. Given renewed domestic and global financial market anxiety about slowing economic growth, as well as high anxiety about sovereign (national) debt levels across Europe, the Federal Reserve will be in no hurry to push the federal funds rate higher.

Most forecasters now suggest that the Fed will delay any modest increase in the federal funds rate until sometime during 2011’s first half. Some economists suggest the rate will stay at its current level well into 2012.

Fortunately for the Fed, extremely low levels of consumer inflation allow it to remain on the sidelines for an extended period. In fact, many economists would suggest that the risk of deflation, or declining prices, is the greater threat to the U.S. and global economies as 2010’s second half begins.

The level of short-term interest rates is a component of the Utah Small Business Index. The Index assumes that a majority of Utah’s small businesses are net borrowers. While credit availability is a critical issue for many small businesses, the cost of such credit will remain historically low.

UTAH EMPLOYMENT

The Utah unemployment rate—the most heavily weighted component of the Zions Bank Small Business Index for Utah—was estimated at 7.3% in the latest month, unchanged from a revised 7.3% during the prior month. The 7.3% rate compares to a 6.8% 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. Other associated factors typically tied to a higher unemployment rate, such as lesser job creation, lesser income gains and lower retail sales, pull the Index lower.

Utah’s unemployment rate averaged 6.6% during 2009, 3.7% in 2008, 2.8% 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 grew by an estimated 900 jobs (up 0.1%) over the past 12 months. This increase compares to a revised loss of 7,100 jobs in the prior year-over-year period. Utah lost 60,700 jobs in 2009, lost 800 jobs in 2008, and added 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 had a negative impact upon Utah’s small businesses…and therefore, the Index.

The Zions Bank Small Business Index for Utah was 105.8 during June 2010, up from a revised 103.4 during May 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 was unchanged in the latest 12-month period. The area’s jobless rate was 5.2%, up from the 5.0% rate of one year ago.

Weber County experienced a decrease of 2,400 jobs (-2.6%) from a year ago. Joblessness registered 7.9%, unchanged from the 7.9% unemployment rate one year ago.

Davis County payrolls increased by 700 jobs (0.7%) in the past year. The unemployment rate was 6.6% in the latest month, up from 6.0% one year ago.

Salt Lake County employment fell by 1,300 jobs (-0.2%) over the year. The county’s unemployment rate was 6.9% in the latest month, up from 6.4% last year.

Utah County employment declined by 1,600 jobs (-0.9%) over the last 12 months. The area’s jobless rate was 7.2%, up from the 6.2% rate of one year ago.

Washington County payrolls declined by 1,600 jobs (-3.4%) in the past year. The unemployment rate was 9.5% in the latest month, up from 9.0% one year ago.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net loss of 125,000 jobs in June 2010, in line with economists’ expectations. However, the loss of 225,000 temporary Census jobs, as expected, was the primary reason for the decline. The rise of 83,000 jobs in the private sector was less than the 100,000 gain expected.

The U.S. unemployment rate declined from 9.7% in May to 9.5% in June, the lowest level of the past 12 months. However, the decline resulted primarily from more than 650,000 people—presumably less optimistic about finding a job—leaving the labor force. The current 9.5% jobless rate matches the 9.5% rate of one year ago and greatly exceeds the 5.5% rate of June 2008.

Goods-producing employment declined by 8,000 jobs in June. Manufacturing employment rose by 9,000 positions, while construction lost 22,000 jobs. Mining and logging employment rose by 5,000 jobs.

Private-sector service providing employment rose in June by 91,000 positions. The professional & business services sector gained 46,000 jobs, while the leisure & hospitality sector added 37,000 jobs. The education & health services sector added 22,000 positions in June. Overall government sector employment fell by 208,000 jobs during the month.

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.

The economy has now added an estimated 882,000 net new jobs this year, with roughly one-third of these jobs tied to the Census. An estimated 339,000 additional Census jobs will end in coming months, suggesting weak “headline” employment totals during summer months.

The July 2010 Zions Bank Small Business Index for Utah will be released on August 10, 2010.

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