A bump in the state's unemployment rate and possible interest rate easing should be welcome news to Utah's small businesses, according to a Zions Bank report released Tuesday.

The bank's Small Business Index rose to 115.9 in August, up from a revised 114.5 in July. 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.

The most heavily weighted component of the index is the state's unemployment rate, which registered 3.4 percent in July (the latest data available), compared to the previous month's 3.1 percent. A higher unemployment rate pulls the index up, as it implies that businesses will have greater access to labor.

"We're at that point where in terms of the overall economy, it's great and we've had a fabulous recovery," said Jeff Thredgold, economic consultant to Zions Bank and author of the report. "If you're running a small business, business is good.

"Your challenge is not to get people in the door, generally. Your challenge is to find someone to wait on them. Everyone is scrambling for bodies, and that's especially tough on a small business, because a lot of the time you don't have the salary structure or the benefits structure to compete."

Total employment, another figure factored into the report, was up 4.7 percent (or 53,900 jobs) for the year-over period. The state added about 55,200 jobs during the prior year-over period. Weaker job gains have a downward effect on the index, because it implies less income creation and retail spending.

"Basically, Utah's economy is still running at 90 miles per hour," Thredgold said. "I suspect that we'll slow from 90 to about 70 mph over the next 12 to 18 months, which is tied to some slowing in the U.S. economy and the fact that it's still tough to find anybody to hire."

The U.S. Labor Department reported that 128,000 net new jobs were added in August. The nation's unemployment rate dipped 0.1 percentage point to 4.7 percent last month, according to the Labor Department.

That and other economic data lead many analysts to predict that the Fed will hold off on further short-term interest rate increases, barring extraordinary events.

"Various inflation reports of the past few weeks have noted some moderation in inflation pressures," Thredgold wrote in the Zions report. "In addition, more signs of economic slowing, including the employment report released on Sept. 1, provide more evidence that the Fed's desired 'soft landing' of the economy is unfolding. At the same time, new economic data also suggest that a precipitous drop in economic performance, led by a softer housing market, is not likely."

Thredgold expects the Fed to hold off on further rate increases through the end of the year, and notes talk among analysts of easing come 2007.

"We make the assumption that most small businesses are borrowers, so with each Fed rate increase, businesses have taken hit after hit," Thredgold said. "So, if in fact the Fed is done, that's good news for small businesses."

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