Colorado small business index climbs to a five-year high

A monthly index tracking conditions for small businesses in Colorado has climbed to its highest level in more than five years on improving prospects for recovery.

“The Small Business Index suggests that Colorado’s transition from painful recession to modest growth should become clear by the end of 2011’s first quarter,” said Jeff Thredgold, an economist who calculates the index for Vectra Bank.

The index rose to 107.7 in December, up more than two points from a revised 105.6 in November. With gains in each of the last 15 months, the index has climbed to its highest level since hitting 107.9 in August 2005.

The index tracks economic conditions from the perspective of small business owners and managers. Higher numbers are associated with more favorable conditions.

The statewide seasonally adjusted unemployment rate, the most heavily weighted of 14 components of the index, rose two-tenths to 8.6 percent in November, the month upon which the December SBI was based. A higher jobless rate actually pushes up the index because it suggests improved access to labor for small businesses, which typically encounter difficulty in competing against larger firms to recruit and retain workers.

At the same time, though, the pace of job losses continues to slow. For the 12-month period ending in November, nonfarm payrolls dropped 10,500 in Colorado. That compares to a revised loss of 14,100 jobs in the prior year-over-year period.

Other factors also should help small businesses, including the continuation of historically low interest rates and, as a result, low borrowing costs. Since small businesses tend to borrow money, low borrowing costs drive up the index.

Thredgold said the Federal Reserve is expected to keep its key short-term interest rate unchanged for all or most of 2011. The federal funds rate has remained at a target rate of 0 percent to 0.25 percent since December 2008. The prime lending rate has remained at an historic low of 3.25 percent during that time.

The performances of the global and national economies also are among the components of the SBI.

The Vectra Bank U.S. Small Business Index fell to 113.7 in December, down three points from a revised 116.7 in November.

According to the initial Labor Department estimate, nonfarm payrolls in the U.S. rose 103,000 in December, less than what was expected.

Through all of 2010, employers created an estimated 1.1 million net new jobs, an average of 94,000 a month. Thredgold said 130,000 net new jobs are needed each month to keep pace with a rising population and keep the unemployment rate stable.

The U.S. unemployment rate fell four-tenths to 9.4 percent in December, mostly as a result of a growing number of people previously looking for work abandoning their job searches.