Vectra Bank Colorado Small Business Index for Colorado
April 2011 Release

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

STRONGER U.S. ECONOMIC GROWTH TO BENEFIT COLORADO’S SMALL BUSINESS SECTOR

HIGHLIGHTS

• The Vectra Bank Colorado Small Business Index for Colorado measured 120.4 in April 2011, down from a revised 121.7 in March 2011

• Colorado’s unemployment rate was estimated at 9.2% in the latest month, down from the prior month’s 9.3% rate.  Total employment grew by 11,100 jobs during the past 12 months

• Strengthening U.S. economic growth over the balance of the year, following weak first quarter 2011 performance, will benefit Colorado’s small businesses

• The U.S. economy added an estimated 244,000 net new jobs in April, exceeding economists’ consensus forecast of a gain of 185,000 jobs.  The private sector’s addition of 268,000 jobs in April was the largest monthly gain in more than five years.  The U.S. unemployment rate rose to 9.0% in April, versus March’s 8.8% rate.  Weak employment as measured within the household survey accounted for much of the rise

U.S. ECONOMIC GROWTH LIKELY TO IMPROVE

U.S. economic growth slowed during 2011’s first quarter, impacted by higher energy prices and poor weather.  Such growth is likely to pick up speed in coming quarters.

The American economy grew at a 1.8% real (after inflation) annual rate during the January–March 2011 quarter, the weakest performance since 2010’s second quarter.  Growth during 2010’s final quarter was at a 3.1% pace, with real growth during 2010 at 2.9%, the best in five years.  In contrast, the U.S. economy fell at a 2.6% real rate in 2009.

Higher gasoline costs and fragile consumer confidence led overall consumer spending to rise at a 2.7% real annual rate, down from the more robust 4.0% real annual pace of the prior quarter.  Fierce winter storms closed businesses and delayed building projects in much of the U.S. during the first quarter.  Blizzards led nonresidential construction activity to decline at a 21.7% annual rate during the quarter, following a modest increase in 2010’s final quarter. 

In addition, severe pressures on state and local government spending and a sharp decline in military outlays led total government spending to decline at the fastest rate since 1983 (bloomberg.com).  Federal government spending, when compared to the prior quarter, declined the most in 11 years.

Most forecasters see first quarter economic weakness as an aberration, rather than the norm.  Forecasting economists see growth returning to a 3.0%-3.5% real annual rate in coming quarters, with some forecasts even stronger.  The Federal Reserve reduced its own forecast of 2011 U.S. economic growth to a 3.1%-3.3% real rate, down from the 3.4%-3.9% forecast range announced last January.

The major unknown still involves oil price volatility tied to political & military conflicts in Northern Africa and in the Middle East.  Other major issues of European sovereign debt anxiety and what will happen in coming weeks relative to future U.S. government spending and the debt ceiling also makes forecasting challenging. 

The pace of U.S. economic growth is a component of the Colorado Small Business Index.  Stronger U.S. economic growth typically leads to stronger growth at the state and regional level.

IN COLORADO

The Colorado unemployment rate—the most heavily weighted component of the Vectra Bank Colorado Small Business Index for Colorado—was estimated at 9.2% in the most recent month, down from the 9.3% rate of the prior month.  The 9.2% rate compares to the 9.0% rate 12 months ago.  A higher Colorado jobless rate is a positive contributor to the Index as it suggests increased access to labor for small businesses. 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.

The state’s unemployment rate averaged 8.9% during 2010, 8.3% during 2009, 4.9% in 2008, 3.7% in 2007, and 4.3% in 2006.  Colorado’s jobless rate averaged 4.6% between 1990 and 2005.

The last 12 months saw an estimated increase in Colorado employment of 11,100 jobs.  This increase compares to a revised gain of 15,600 jobs in the prior year-over-year period.  Colorado lost 25,500 jobs in 2010, lost 104,700 jobs in 2009, added 19,000 jobs in 2008, added 52,200 jobs in 2007, and added 53,100 jobs in 2006.   

These job totals compare to gains averaging 46,500 net new jobs annually between 1990 and 2005.   More recently, job gains leading to greater income creation and stronger retail spending, have a positive impact upon Colorado’s small businesses…and therefore, the Index.

NATIONAL EMPLOYMENT

The U.S. Department of Labor reported a net gain of 244,000 jobs in April 2011, stronger than the 185,000 net gain expected.  The rise of 268,000 jobs in the private sector was also stronger than expectations and was the largest monthly gain since February 2006.  In addition, previously reported gains in February and March were revised higher by 46,000 jobs. 

The U.S. unemployment rate rose to 9.0% in April, versus March’s 8.8% rate.  A decline in estimated employment within the household survey (from which the unemployment rate is derived) accounted for most of the rate increase.  The household survey had previously reported outsized gains in employment.  The current 9.0% jobless rate compares to the 9.8% rate of one year ago, the 8.9% rate of April 2009, and the 4.9% rate during April 2008. 

Goods-producing employment rose by 44,000 jobs in April.  Manufacturing employment rose by 29,000 positions.  Construction added 5,000 jobs, while mining and logging employment rose by 10,000 jobs.

Private-sector service-providing employment rose in April by 224,000 positions.  Professional & business services added 51,000 jobs, while retail trade added 57,000 jobs.  Financial activities employment rose by 4,000 positions.  The education & health services sector added 49,000 jobs, while leisure & hospitality added 46,000 jobs.  Overall government employment fell by 24,000 jobs during the month, tied to weakness at the state and local level.

The U.S. economy suffered a net decline of 3.6 million jobs during 2008, the worst year since 1945.  The net loss of 5.1 million jobs during 2009 easily surpassed the 2008 total. 

The May 2011 Vectra Bank Colorado Small Business Index for Colorado will be released on June 9, 2011.

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

©Copyright 2011 Thredgold Economic Associates