Conditions for small businesses in Utah slipped in June, despite a slightly better availability of labor, according to a monthly index released Tuesday.

The Zions Bank Small Business Index for Utah was 87.0 in June, down from a revised 88.9 in May.

The index measures business conditions from the viewpoint of the Utah small-business owner or manager. A lower index number is associated with less-favorable business conditions. The index uses 100 for calendar year 1997 as its base.

The most heavily weighted component of the index, Utah's unemployment rate, was estimated at 3.2 percent in June, up from 3.1 percent the prior month but up from 2.6 percent a year earlier. A higher Utah unemployment rate is a positive contributor to the index because it implies increased access to Utah labor.

But inflation has starting taking its toll, and the index report's author said monetary tightening by the Federal Reserve also could hurt companies. Some forecasters suggest a Fed rate increase as early as Aug. 5, although most believe a change will come later this year or early next year.

"The state's small-business sector has been hurt by sharply higher costs for energy and numerous materials," Jeff Thredgold, economic consultant for Zions Bank and president of Thredgold Economic Associates, said in the report.

"The inflation 'medicine' that the Fed may deliver during the next year will also be painful to many small businesses. The Utah Small Business Index makes the assumption that most small businesses are net borrowers of operating funds. As a result, higher short-term interest rates would be a negative development for many small businesses."

Inflation containment is now the Fed's primary focus, shifting from providing liquidity and monetary ease in whatever amount necessary to deal with one major domestic and global financial crisis after another, Thredgold said.

"Even as the Fed undertakes this shift in focus, the path will be littered with obstacles. The Fed cannot force energy prices lower. It can, however, tighten monetary policy enough to minimize the impact of high energy costs on longer-term prices. The most favorable development would be to see energy prices decline sharply during the next six to 12 months," he said.

Total Utah employment rose an estimated 17,900 jobs, or 1.4 percent, over the past 12 months. Although down from the previous year-over-year increase, the 1.4 percent rise was among the top growth rates in the nation.

By comparison, Utah added 47,800 jobs in 2007; 55,700 jobs in 2006; 43,700 jobs in 2005; and 30,200 jobs in 2004. "More recently," Thredgold said, "weaker job gains, leading to lesser income creation and softer retail spending, have a negative impact upon Utah's small businesses, and therefore, the index."

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