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As the nation goes, so goes Colorado



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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Jeff Thredgold
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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