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Posted: February 17, 2011

Help for small business

Vectra Bank Colorado Small Business Index rises once more in January

Jeff Thredgold

As a national economic recovery picked up steam and forecasts for 2011 brightened, the Vectra Bank Colorado Small Business Index for Colorado measured 112.9 in January, up from a revised 106.3 in December 2010.

Colorado's unemployment rate was estimated at 8.8 percent in the latest month, up from the prior month's 8.6 percent rate. Total employment in Colorado grew by 5,200 jobs during the past 12 months. Nationally, the U.S. unemployment rate dropped to 9.0 percent in January, versus December's 9.4 percent rate.

Stronger U.S. economic growth during 2010's final quarter is likely to be followed by more of the same. Improving U.S. economic performance is a positive sign for Colorado's small business sector.

A STRONGER U.S. ECONOMY
The U.S. economy is now showing more signs of self-sustaining growth. Such growth is opposed to the somewhat artificial growth during late 2009 and in early 2010 tied in part to massive government stimulus. The American economy (GDP) grew at a 3.2 percent real (after inflation) annual rate during 2010's final quarter, the best performance since 2010's first quarter. GDP is the most all-inclusive measure of goods produced and services provided on U.S. soil.

U.S. economic growth during 2010 came in at a 2.9 percent rate after inflation, the strongest performance of the past five years. Such growth compares to a 2.6 percent real rate of decline during 2009, the depths of the recession. The swing in performance from 2009 to 2010 was the widest since 1983, a period of 27 years.

Better fourth-quarter economic growth was led by stronger consumer spending. Consumer spending, which accounts for roughly 70 percent of the overall economy, rose at a 4.4 percent real annual rate during 2010's final quarter, the strongest performance in four years.

The most surprising detail within the report was the plunge in the accumulation of business inventories. GDP is a measure of what is produced, not what is sold. Businesses added to their inventories of goods at a $7.2 billion annual rate, down sharply from the $121.4 billion annual rate in the prior quarter.

The swing in inventories actually subtracted 3.7 points from fourth-quarter growth, the largest impact since 1988. Had inventories of manufactured goods accumulated during the fourth quarter at the same pace as in the July-September period, the U.S. economy would have grown at a red hot 7.1 percent pace in the fourth quarter, the strongest in 26 years.

Moreover, the sharp decline in inventory building during the fourth quarter creates a need for greater manufacturing output during the current and subsequent quarters. Many economists have increased their GDP forecast for the current quarter to near 4.0 percent, or even higher, as a result of the inventory data. Various growth estimates for the second quarter have also been raised slightly.

The pace of U.S. economic performance is a component of the Small Business Index for Colorado. Stronger growth is a positive contributor to the Index, as it suggests greater outside stimulus impacting small business opportunities within the state. Regional and global economic performance are also components of the Small Business Index. The Vectra Bank Colorado Small Business Index for Colorado was 112.9 in January, up from a revised 106.3 in December 2010. The Index measures business conditions from the viewpoint of the Colorado small business owner or manager.  

A higher Index number is associated with more 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 also rose slightly to 115.7 in January, up from 114.8 in December.

IN COLORADO
The Colorado unemployment rate-the most heavily weighted component of the Vectra Bank Colorado Small Business Index for Colorado-was estimated at 8.8 percent in the most recent month, up from the 8.6 percent rate of the prior month. The 8.8 percent rate compares to the 7.3 percent 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 7.7 percent during 2009, 4.9 percent in 2008, 3.9 percent in 2007, and 4.4 percent in 2006. Colorado's jobless rate averaged 4.6 percent between 1990 and 2005.

The last 12 months saw an estimated increase in Colorado employment of 5,200 jobs (up 0.2 percent), which compares to a revised loss of 9,500 jobs in the prior year-over-year period. Colorado lost 106,300 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. Until the most recent period, job declines, leading to slower income creation and weaker retail sales, have had a negative impact upon Colorado small businesses and therefore the Index.

NATIONAL EMPLOYMENT
The U.S. Department of Labor reported a net gain of 36,000 jobs in January 2011, much weaker than the 145,000 net gain expected. The rise of 50,000 jobs in the private sector was also weaker than expectations. Better news saw November and December job data revised to show the addition of 40,000 more jobs than originally reported. Severe winter weather across much of the nation prevented an estimated 886,000 people from going to work during the measurement week of January 9, 2011, leading to uncertainty as to the quality of the data.

The U.S. unemployment rate dropped to 9.0 percent in January, versus December's 9.4 percent rate. The decline from November's 9.8 percent rate to 9.0 percent in January was the largest two-month decline since 1958. A strong gain in new job creation within the household survey (from which the unemployment rate is derived) accounted for most of the rate decline. Annual benchmark revisions to population also impacted the data. The current 9.0 percent jobless rate compares to the 9.7 percent rate of one year ago and greatly exceeds the 7.8 percent rate of January 2009.

Goods-producing employment rose by 18,000 jobs in January. Manufacturing employment rose by 49,000 positions, the largest monthly rise since August 1998. Construction lost 32,000 jobs, while mining and logging employment rose by 1,000 jobs.

Private-sector service-providing employment rose in January by 32,000 positions. Professional & business services added 31,000 jobs, while retail trade added 28,000 jobs. Transportation & warehousing lost an estimated 38,000 jobs, tied to poor weather. Financial activities employment fell by 10,000 jobs. The education & health services sector added 13,000 positions, while leisure & hospitality lost 3,000 jobs. Overall government employment fell by 14,000 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. A revised net loss of 5.1 million jobs during 2009 easily surpassed the 2008 total. The most recent recession was the first since the Great Depression to see all net job gains of the prior expansion eliminated.

The American economy added a revised 909,000 net new jobs during 2010, or 76,000 per month. 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.
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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

The "statistics" are straight from the government and I doubt them. How can an increased unemployment rate help businesses??? so they can find help??? We don't neen more employees; we need sales and more unemployment is counter to that end. The national decrease in the unemployment rate does NOT take into account the people who have quit looking for work, so in fact, the rate might be worse. I don't trust any "statistics" from our government. I only know what I see and a 40 year small businessman and I don't see any of this. By John Wray on 2011 02 17

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