Vectra Bank Colorado Small Business Index for Colorado
April 2010 Release

Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado

COLORADO’S SMALL BUSINESS SECTOR WILL BENEFIT FROM ONGOING U.S. ECONOMIC GROWTH AND STRONGER U.S. JOB GAINS

HIGHLIGHTS

• The Vectra Bank Colorado Small Business Index for Colorado measured 93.6 in April 2010, up from a revised 90.7 in March

• Colorado’s unemployment rate was estimated at 7.9% in the latest month, up from the prior month’s 7.7% rate.  Total employment fell by 69,700 jobs during the past 12 months

• Ongoing U.S. economic growth and the strongest American job gains in four years are positive developments for Colorado’s small businesses

• The U.S. economy gained an estimated 290,000 net new jobs in April, more than the 185,000 gain expected.  In addition, job gains of the two prior months were revised sharply higher.  The U.S. unemployment rate rose to 9.9% in April, as more than 800,000 people returned to the labor force

U.S. ECONOMIC GROWTH…AND MORE JOBS
The U.S. economy recorded a third consecutive quarter of economic growth during the January to March 2010 quarter, with a 3.2% real (inflation adjusted) annual growth pace.  The 3.2% annual growth rate was in line with economists’ expectations.  In addition, U.S. job gains during April were the strongest in four years (see National Employment section).

The 3.2% growth pace was sharply below the 5.6% real annual growth rate of the prior quarter—the strongest quarterly growth rate in six years.  However, various components of the first quarter report were favorable.  In addition, the 5.6% number had some one-time factors which overstated the rate of growth.

Perhaps the most favorable nugget of data was stronger performance by the consumer.  Consumer spending—70% of the American economy—rose at a 3.6% real annual rate, the strongest performance in three years.  Such spending rose at a modest 1.6% real annual rate during 2009’s final quarter. 

Consumers in general have felt better in recent months about their own prospects for the future, tied to greater job availability, a rising stock market, and more signs that the worst recession in our lifetimes is behind us.  Still, a painful unemployment rate of 9.9% and 15 million people currently unemployed clearly limits the consumer spending upside.

Spending by businesses on equipment and software rose at a solid 13.4% annual pace, although down from the 19.0% fourth quarter pace.  Investment in residential real estate declined at an 11% annual rate, following two quarters of modest gains.

Federal government spending rose at a 1.4% real annual pace, but was more than offset by a 3.8% spending reduction by state and local governments.  State and local spending is likely to remain weak in coming quarters as tax revenues remain under pressure.

The 3.2% real annual growth pace of the first quarter is likely to be followed by similar growth in coming quarters (see chart).  As usual, economic forecasters on the fringes include those seeing a double-dip recession later this year or early in 2011, as well as those seeing much stronger economic growth in coming quarters.

U.S. economic performance is a component of the Colorado Small Business Index.  U.S. employment gains and losses are key factors relative to U.S. economic growth or periods of recession.

COLORADO EMPLOYMENT
The Colorado unemployment rate—the most heavily weighted component of the Vectra Bank Colorado Small Business Index for Colorado—was estimated at 7.9% in the most recent month, up from the 7.7% rate of the prior month.  The 7.9% rate compares to the most recent peak of 8.3% in June 2009 and a 7.7% rate 12 months ago.  A higher Colorado jobless rate is a positive contributor to the Index as it suggests greater access to labor for small businesses.

The state’s unemployment rate averaged 7.7% during 2009, 4.9% in 2008, 3.9% in 2007, 4.4% in 2006, and 5.3% during the period 2001-2005.  The Colorado unemployment rate averaged 2.7% during calendar year 2000, the lowest average annual rate on record.  Colorado’s jobless rate averaged 4.4% during the 1990s.

The last 12 months have seen an estimated decline in Colorado employment of 69,700 jobs (down 3.1%), which compares to a revised loss of 83,000 jobs in the prior year-over-year period.  Colorado lost 106,300 jobs in 2009, added 19,000 jobs in 2008, added an average of 44,600 jobs annually during 2004 to 2007, lost an average of 37,000 jobs in both 2002 and 2003, and gained 13,100 jobs in 2001. 

These job totals compare to gains averaging 77,000 new jobs annually during the 1993-2000 period.  More recently, job declines, leading to slower income creation and weaker retail sales, have a negative impact upon Colorado small businesses…and therefore the Index.

NATIONAL EMPLOYMENT
The U.S. Department of Labor reported a net gain of 290,000 jobs in April 2010, roughly 100,000 more than economists’ expectations.  The gain was the best in four years.  In addition, job gains of the two prior months were revised higher by 121,000 jobs.  

The U.S. unemployment rate rose to 9.9% in April 2010, following three consecutive months at 9.7%.  The rise resulted primarily from more than 800,000 people—more optimistic about finding a job—reentering the labor force.  The current 9.9% jobless rate compares to the 8.9% rate of one year ago and is nearly double the 5.0% rate of April 2008. 

Goods-producing employment rose in April for the second month in a row, with a rise of 65,000 jobs.  Manufacturing employment rose by 44,000 positions—the strongest monthly gain in nearly 12 years—while construction added 14,000 jobs. 

Private sector service-providing employment rose in April by 166,000 positions.  The professional & business services sector gained 80,000 jobs (including 26,000 “temp” jobs), while the retail trade sector added 12,000 jobs.  The education & health services sector added 45,000 positions in April.  In addition, the government sector added 65,000 jobs during the month, essentially all temporary Census jobs.

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.

Revised data now shows the U.S. economy added 573,000 jobs during 2010’s first four months.  Solid job gains should be reported in coming months as the U.S. economy continues to emerge from the worst recession in the post-Depression period. 

The May 2010 Vectra Bank Colorado Small Business Index for Colorado will be released on June 10, 2010.

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

©Copyright 2010 Thredgold Economic Associates