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Posted: May 13, 2011

As the nation goes, so goes Colorado

Stronger economic numbers are good news for small business

Jeff Thredgold

A more impressive U.S. economy should set the stage for stronger Colorado economic growth. A stronger U.S. economy over the balance of the year, following weak first-quarter 2011 performance, will benefit the state's small businesses.

Colorado already has shown positive performance, a trend that continued in April as Colorado's unemployment rate was estimated at 9.2 percent, down from the prior month's 9.3 percent rate. Total Colorado employment grew by 11,100 jobs during the past 12 months.

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 percent in April, versus March's 8.8 percent rate. Weak employment as measured within the household survey accounted for much of the rise.

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 percent 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 percent pace, with real growth during 2010 at 2.9 percent, the best in five years. In contrast, the U.S. economy fell at a 2.6 percent real rate in 2009.

Higher gasoline costs and fragile consumer confidence led overall consumer spending to rise at a 2.7 percent real annual rate, down from the more robust 4.0 percent real annual pace of the prior quarter. Fierce winter storms closed businesses and delayed building projects in much of the United States during the first quarter. Blizzards led nonresidential construction activity to decline at a 21.7 percent 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 percent-3.5 percent 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 percent-3.3 percent real rate, down from the 3.4 percent-3.9 percent forecast range announced last January.

The major unknown still involves oil price volatility tied to political and military conflicts in North 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.

The Vectra Bank Colorado Small Business Index for Colorado was 120.4 in April, down from a revised 121.7 in March. 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. Small Business Index in April measured 115.7, slightly lower than its 116.9 in March.

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The Tea Leaf is a weekly economic and financial update by Jeff Thredgold, economist for Vectra Bank Colorado. He has been writing an economic update every week for the past 31 years and is the only economist in the world to have received the designation of CSP, or Certified Speaking Professional. Republished with permission from the Tea Leaf by Jeff Thredgold, whose site address is www.thredgold.com/html/leaf.html.
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Readers Respond

We need a new employment category for small businesses which will track the labor cost to comply with all the new regulations and reporting requirements established by federal, State and local programs. That would account for at least half of the new employees hired in the last few years.Example:We now have to report new hires to the new "Colorado State Directory of New Hires". The State found a new revenue source in December. When small businesses properly paid employee income taxes to the State on Dec 15, the state separated the report from the checks, deposited the checks and held the reports until they could declare that they were late. The state then charged a 5% late fee. When challenged, the state sent notices stating that they were reviewing the information. Three months of notices certainly increased the state hiring to prepare and mail. Why doesn't ColoBiz do an expose on this? By JimW on 2011 05 13
The figures for Colorado seem high, but NE Colorado is doing well and would do much better if our Administration would let them drill in Colorado.As it is, they are mostly based here and travel north to work. We're lucky that they are historically based here. I believe that the employment figures are jaded state wide and nationwide because of the people who have quit looking. I understand your inclination to be optomistic but I think the true unemployment figures are close to double what is reported. We've got a LONG way to go By John Wray on 2011 05 13

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