Vectra Bank Colorado Small Business Index for Colorado
June 9, 2011
May 2011 Release
Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
COLORADO’S SMALL BUSINESSES WILL CONTINUE
TO BENEFIT FROM LOW FINANCING COSTS
- The Vectra Bank Colorado Small Business Index for Colorado measured 117.5 in May 2011, down from a 120.4 in April 2011
- Colorado’s unemployment rate was estimated at 8.8% in the latest month, down from the prior month’s 9.2% rate. Total employment grew by 8,200 jobs during the past 12 months
- Despite the high level of uncertainty involving domestic politics and the global economy, one thing is certain…low financing costs will continue to benefit Colorado’s small businesses
- The U.S. economy added an estimated 54,000 net new jobs in May, sharply below expectations. In addition, estimated job gains of the two prior months were revised lower by 39,000 jobs. The private sector’s addition of 83,000 jobs in May was the smallest gain in 11 months. The U.S. unemployment rate rose to 9.1% in May, versus April’s 9.0% rate. A 272,000 person increase in the estimated labor force within the household survey accounted for much of the rise
LOW FINANCING COSTS TO CONTINUE
Major uncertainty exists regarding the need to increase the nation’s debt ceiling before early August. Republicans are demanding substantial entitlement spending adjustments from the Democratic Administration and Senate in order to support the debt ceiling increase.
In addition, a likely default or repricing of Greek national (sovereign) debt could occur at any time. Whether similar adjustments will be made to high national debt levels in Ireland and Portugal remain uncertain. In addition, political and military conflicts in Northern Africa and the Middle East have pushed oil prices higher. Whether such prices will move higher still, or eventually plunge, remains to be seen.
One thing is near certain, however. The level of the most important of all short-term interest rates—the federal funds rate—is not expected to change any time soon. This rate, to which all other short-term interest rates are largely tied, has been at an all-time low target range of 0.00%-0.25% since December 2008, a period of 30 months. Most forecasters see the rate remaining at this level through at least the end of the year.
Of greater uncertainty is whether the Federal Reserve will decide to pursue a third major program of monetary stimulus, known as “quantitative easing”…or QE3. Such a program could be enacted to buffer recent signs of significant U.S. economic slowing.
QE2, a $600 billion program to buy U.S. Government securities in order to stimulate the economy, concludes at the end of this month. Most financial market players would prefer not to see a third program, as it could jeopardize the Fed’s hard-earned inflation fighting credibility.
The level of short-term financing costs is a component of the Small Business Index, as is the pace of U.S. economic growth. Weaker U.S. economic growth would likely contribute to weaker regional performance, also a component of the Small Business Index.
The Colorado unemployment rate—the most heavily weighted component of the Vectra Bank Colorado Small Business Index for Colorado—was estimated at 8.8% in the most recent month, down from the 9.2% rate of the prior month. The 8.8% rate compares to the 9.0% rate 12 months ago. A lower Colorado jobless rate is a negative contributor to the Index as it suggests decreased access to labor for small businesses. Other associated factors typically tied to a lower unemployment rate, such as greater job creation, greater income gains and higher retail sales, pull the Index higher.
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 8,200 jobs. This increase compares to a revised gain of 11,800 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.
The Vectra Bank Colorado Small Business Index for Colorado was 117.5 in May 2011, down from 120.4 in April. The Index measures business conditions from the viewpoint of the Colorado small business owner or manager.
A lower Index number is associated with less favorable business conditions for Colorado’s small businesses. The Index uses 100.0 for calendar year 1997 as its base year. The Index also includes revisions to various historical and new forecast components as they become available.
The U.S. Department of Labor reported a net gain of 54,000 jobs in May 2011, much weaker than the 165,000 net gain expected. In addition, estimated job gains of the two prior months were revised lower by 39,000 jobs. The rise of 83,000 jobs in the private sector was also weaker than expectations and was the smallest gain in 11 months.
The U.S. unemployment rate rose to 9.1% in May, versus April’s 9.0% rate. A 272,000 person rise in the estimated labor force accounted for most of the rate increase. The current 9.1% jobless rate compares to the 9.6% rate of one year ago, the 9.4% rate of May 2009, and the 5.4% rate during May 2008.
Goods producing employment rose by an anemic 3,000 jobs in May, with a small loss in manufacturing employment largely offsetting small gains in construction and mining & logging. Private sector service providing employment rose by 80,000 jobs in May, led by gains in professional & business services and education & health services. Overall government employment fell by 29,000 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 American economy added 940,000 net new jobs during 2010, or 78,000 per month. We estimate a net gain of 2.2 million jobs during 2011. Roughly 130,000 net new jobs need to be added monthly just to meet the needs of a rising population, and just to keep the unemployment rate stable.
The June 2011 Vectra Bank Colorado Small Business Index for Colorado will be released on July 14, 2011.
Thredgold Economic Associates
Economic Consultant to Vectra Bank Colorado
©Copyright 2011 Thredgold Economic Associates