Tight labor markets squeeze small firms

Published: Wednesday, Feb. 8, 2006 9:19 a.m. MST
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Tight labor markets continue to put pressure on Utah's small businesses, according to a Zions Bank report released Tuesday.

Zions Bank's Small Business Index for Utah declined to 106.6 last month from a revised 108.2 in December 2005.

The index measures business conditions from the viewpoint of the Utah small-business owner or manager. It uses 100 for calendar year 1997 as its base and includes revisions to various historical or forecast components as they become available. A higher figure is associated with favorable business conditions.

"We've gained about 44,000 new jobs over the last 12 months, which is actually better than the growth rate we averaged during the late 1990s," said Kendall Oliphant, senior vice president at Thredgold Economic Associates, economic consultants to Zions Bank. "We averaged 38,000 new jobs annually between 1994 and 2000. So things are pretty good right now on the job growth front."

While that, combined with the state's declining unemployment rate (at 3.8 percent, according to the most recent data), is "great for job seekers," Oliphant said, "it's tough for small businesses, and businesses of all kinds that are trying to find qualified people."

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The unemployment rate is the most heavily weighted component of the Zions index.

Not only is the labor pool shallower for Utah's employers — indeed, according to Oliphant, for employers nationwide — but that shortage is putting upward pressure on wages.

"Businesses are required to raise wages to attract good people, which again is good for employees, but not for employers," Oliphant said. "And it also tends to drive inflation up, which is a concern for the Federal Reserve."

Last week, the U.S. Labor Department reported a net gain of 193,000 jobs nationwide in January, which fell short of Wall Street's projection of 240,000 added jobs. However, net job gains in November and December were revised higher by 81,000 jobs.

Those numbers have changed some analysts' minds regarding inflation, Oliphant said, and the likelihood of additional interest rate increases by the Federal Reserve.

"We're seeing wage pressure throughout the U.S., so the Fed probably will keep raising (short-term interest) rates, to 5 percent, and possibly even higher," Oliphant said.

Though that will zing businesses that are highly leveraged or laden with debt, Oliphant said the Utah economy will persevere.

"The fact that job growth is powerful — and it's not just powerful in one industry sector, it's powerful across the board — means that the Utah economy is strong, and should continue to be strong," he said.


E-mail: jnii@desnews.com

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