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Posted: March 17, 2011

State’s small business benefits from U.S. job gains

Vectra Bank Colorado Small Business Index rises slightly in February

Jeff Thredgold

 The Vectra Bank Colorado Small Business Index for Colorado measured 113.2 in February, up from a revised 112.8 in January. The change came largely from an improving employment picture.

Colorado's unemployment rate was estimated at 8.8 percent in the latest month, unchanged from the prior month. Total employment grew by 5,200 jobs during the past 12 months.

Stronger employment gains reported for February, should they continue, will provide support for more impressive small business performance in Colorado and across the nation. A return of much stronger U.S. job gains in coming months will bode well for Colorado's small business sector.

The U.S. economy added an estimated 192,000 net new jobs in February, matching economists' consensus forecast. In addition, previously reported job gains in December and January were revised to show 58,000 more jobs. The U.S. unemployment rate dropped to 8.9 percent in February, versus January's 9.0 percent rate, and rates of 9.4 percent in December and 9.8 percent in November. Solid employment gains as measured within the household survey accounted for much of the decline.

For the past six months, economic data-including resurgence in U.S. manufacturing, rising confidence levels, improving retail and auto sales, declining claims for unemployment insurance, and more impressive performance of the nation's service-providing sector-have been met with substandard job gains. Not so in February.

The American economy added 192,000 net new jobs during February, matching economists' consensus forecast. In addition, previously reported job gains during December and January were revised to show 58,000 more people at work. Just over two-thirds of the industries measured by the U.S. Labor Department added jobs in February, the most widespread gain in 13 years.

As noted above, the nation's unemployment rate has reached the lowest level in nearly two years. The decline of nearly a full percent in the past three months is the most rapid decline in nearly 28 years (cnnmoney.com).

Such a rapid decline, however, could partially reverse itself in coming months, especially now that solid job data has been reported. Tens and hundreds of thousands of former workers who left the labor market during the past 12 to 24 months because of bleak job prospects-and who were no longer counted as unemployed-could now re-emerge. Unless and until they find a job, they will now be counted as unemployed.

Another reason for the sharp decline in the jobless rate has been more impressive job gains as derived from the "household" survey, the source of the unemployment rate. This smaller survey has reported the addition of 664,000 additional jobs over the past three months. By comparison, the larger "establishment" survey has reported the addition of 407,000 net new jobs over the past three months. The smaller survey can be more accurate at times of transition to stronger, or weaker, job gains as it has a greater focus as to what is happening with small business startups and shutdowns.

Two trends continued in February, with the likelihood that such trends will be noteworthy during much of 2011 and perhaps 2012. The nation's private sector employers added 222,000 net new jobs during February, while state and local government employment fell by another 30,000 positions.

Private companies will likely continue to add to payrolls at more impressive rates than has been the case during the past two years. Corporate profit levels have risen significantly, while productivity gains tied to solid investments into technology have largely run their course. In summary, more bodies are simply needed.

The second is that employment within the state and local government sector will continue to decline, a result of severe weakness in state and local tax revenues of the past three years. State and local governments have now eliminated 377,000 jobs since peaking in September 2008 (nytimes.com). Payments to state and local governments as part of the massive $850 trillion stimulus program of roughly two years ago are now gone. Funds to maintain employment levels are nowhere to be found.

An expected offset to state and local employment weakness later this year and in 2012 should be a modest resurgence in residential and commercial real estate construction employment. Widespread weakness of the past four years in both sectors should finally give way to rising new construction activity.

Such gains will be most welcome as the unemployment rate in the construction sector is estimated at 21.8 percent, the highest of any industry. The construction sector actually added 33,000 net new jobs during February, the largest one-month gain in nearly four years.

The nation's goods producing sector added 70,000 net new jobs in February, led by the 33,000 rise in construction employment. The manufacturing sector added an identical total, with the rise of 97,000 net new manufacturing jobs the strongest three-month gain in 16 years. Manufacturing sector unemployment is now estimated at 9.9 percent. Mining and logging added another 4,000 jobs.

The nation's much larger service providing sector added 152,000 net new jobs in February, led by the addition of 47,000 new jobs in the professional and business services arena. Education and health services added 40,000 net new jobs, while transportation and warehousing added 22,000 jobs. Leisure and hospitality added 21,000 net new positions, while other services added 14,000 jobs. As noted earlier, government lost 30,000 jobs, all in the state and local sector.

One good month does not a trend make. However, there is reason to believe that more solid job gains should become the norm-rather than the exception-in coming months. At the same time, external events such as Middle Eastern and Northern African political instability, rising oil prices, European debt issues, and political developments in the nation's capital could damage confidence and the economy, and lead to softer job gains.

The pace of U.S. employment growth is a component of the U.S. Business Index. Stronger American employment growth contributes to stronger U.S. economic performance, which is a component of the Small Business Index for Colorado. Regional and global economic performances are also components of the Small Business Index.

The Vectra Bank Colorado Small Business Index for Colorado was 113.2 in February, up from a revised 112.8 in January. 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 in February, moving to 116.4 from a revised 115.8 in January.

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, unchanged from the 8.8 percent rate of the prior month. Because of annual baseline revisions, new data was not available at the time of this writing. The 8.8 percent rate compares to the 7.4 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 8.0 percent during 2010, 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), matching the prior month. Colorado lost 50,000 jobs in 2010, 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.
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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

This is a test By Phil Cardenas on 2011 03 18
I would be curious to see how that "good news" breaks down for sectors. I would guess that the HUGE increase is in the oil business. I'm from the eastern plains and there is in effect NO unemployment out here. The drilling companies are going full bore, except that it's all to the north of us because it is too difficult to get permits in Colorado, which is a shame. By john wray on 2011 03 17

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