Utah's index rises as U.S. economy slows

The "headwinds" of rising interest rates and high energy prices are affecting both the U.S. and Utah economies, according to a new report from Salt Lake-based Zions Bank.

But despite those negative forces, the bank's Small Business Index for Utah rose to 116.1 in June from a revised 115.8 in May, Zions said Tuesday.

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.

Jeff Thredgold, economic consultant to Zions Bank and head of Thredgold Economic Associates, wrote in the report that the Utah unemployment rate — the most heavily weighted component of the index — was estimated at 3.5 percent in May, the latest month for which figures are available. That compared to 4.4 percent during May 2005. A lower Utah unemployment rate is negative for the index, because it implies decreased access to workers.

However, total Utah employment rose by an estimated 51,700 jobs during the 12 months ending in May, compared to a gain of 50,000 jobs in the prior year-over-year period. The Zions report said stronger job gains lead to more income creation and retail spending, which boost the small-business index.

Kendall Oliphant, an economist with Thredgold Economic Associates, said Utah's job growth was the key to this month's increase in the index.

"Offsetting that strong job growth are rising financing costs, . . . as the Federal Reserve increased interest rates for the 17th time (on June 29)," Oliphant said. "That did cause the index to not rise as much as it would have. And then, of course, the slowing U.S. economy is weighing it down, as well."

Thredgold wrote in the report that oil prices of $73 to $75 per barrel are draining funds from consumer spending, leaving less for more traditional purchases.

"The combination of these factors suggests U.S. economic growth will run near a 3 percent real (after inflation) annual rate over 2006's final six months, with a similar forecast for growth in 2007," Thredgold wrote. "By comparison, real growth was 4.2 percent in 2004 and 3.5 percent in 2005."

But Oliphant said he expects Utah's economy to continue to outperform those U.S. numbers "for the foreseeable future."

"As the national economy slows somewhat, the Utah economy will slow somewhat," he said. "But we have a lot of things going for us," including a strong real estate market and continuing job growth.

"The one thing that's going to counter the rising job market in Utah is the low unemployment rate. It's actually going to be hard to fill positions that would otherwise be created, because it's going to be hard to find qualified people," Oliphant said.

"That's going to limit growth, and we might see somewhat of a slowing in employment growth in Utah, . . . but Utah will still be in the top 10 in job growth in the nation in the next couple of years."

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E-mail: gkratz@desnews.com