From Deseret News archives:

Small-business index plateaued in quarter

Published: Wednesday, Jan. 9, 2008 12:49 a.m. MST
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Utah's small businesses conditions plateaued a bit in the fourth quarter, according to a report issued Tuesday by Zions Bank.

The Zions Bank Small Business Index for Utah slipped to 107.0 in December, down from a revised 107.7 in November and 107.3 in October.

A lower index number is associated with less favorable business conditions for Utah's small businesses. The index uses 100.0 for calendar year 1997 as its base year and includes revisions to various historical and new forecast components as they become available.

In comparison, the index was as low as 87.7 for the full year 2001 and as high as 124.3 in 2005. Despite slipping in December, the index saw fourth-quarter months that were higher than the figures for the first three quarters of 2007.

The most heavily weighted component, the Utah unemployment rate, was an estimated 2.8 percent in December, unchanged from November. A higher rate is a positive contributor to the index, because it implies increased access to Utah labor.

The state unemployment rate compares with 2.6 percent a year earlier. The 2.3 percent rate in February was the state's lowest ever.

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Utah has remained an employment machine. The total number of jobs in the state was up an estimated 48,900 — or 4 percent — year over year. The state added 52,300 jobs in the prior year-over-year period.

Meanwhile, the national economy added only 18,000 net new jobs in December, when the national unemployment rate grew from 4.7 percent to a two-year high of 5 percent.

But the local report's author, Jeff Thredgold, who is president of Thredgold Economic Associates and economic consultant to Zions Bank, said signs of a weak national economy "strongly suggest" additional rate cuts by the Federal Reserve will occur, which would benefit the state's small-business sector. A half-percent cut could happen Jan. 30, with weak U.S. job creation boosting the odds that will happen, he wrote.

"Given financial-market paranoia, as well as a rising chance of a U.S. recession, a sizable interest-rate cut before that date is also a possibility," Thredgold wrote. "Our forecast assumes that the Fed will follow a Jan. 30 rate cut, with two additional 0.25 percent cuts on March 18 and April 30."

The Fed cut its key interest rate, the federal funds rate, by a half-percent in September, followed by quarter-percent cuts in October and December. The rate now is at 4.25 percent.

Financing costs are part of the Zions Bank index. "We assume that most small businesses are net borrowers, with interest-rate cuts reducing borrowing costs," Thredgold wrote.


E-mail: bwallace@desnews.com

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