Colorado small business index climbs to highest level in more than five years

Jeff Thredgold
Jeff Thredgold

A monthly measure of economic conditions for small businesses in Colorado has climbed to its highest level in more than five years, forecasting a more robust recovery that includes job growth.

“Colorado’s swing from net job losses during the most recent 12-month period to net job gains should continue in coming months. Colorado’s economic recovery remains on track,” said Jeff Thredgold, a corporation economist who calculates the Vectra Bank Colorado Small Business Index (SBI).

The SBI jumped more than six points in January to 112.9. With gains in each of the last 16 months, the index has climbed to its highest level since reaching 111.1 in June 2005. The index measures conditions from the perspective of a small business owner or manager. Higher numbers reflect more favorable conditions.

The statewide seasonally adjusted unemployment rate, the most heavily weighted of 14 components of the SBI, rose two-tenths to
8.8 percent in December, the latest month for which estimates are available. 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 employees.

At the same time, what had been job losses in Colorado have turned into job gains. Over the past year, nonfarm payrolls in the state have increased an estimated 5,200. That compares to a decline of 9,500 in the previous year-over-year period. Job gains tend to increase income and retail sales, in turn pushing up the SBI.

A number of other factors have contributed to gains in the index as well, Thredgold said, including improving performance in the United States economy.

The Vectra Bank U.S. Small Business Index rose nearly a point in January to 115.7.

Gross domestic product, the broad measure of goods and services produced in the U.S. grew at an annual rate of 3.2 percent in the fourth quarter of 2010. For all of 2010, the GDP grew at an annual rate of 2.9 percent after inflation, the strongest performance in five years.

Consumer spending, which accounts for about 70 percent of economic activity in the U.S., rose at an annual rate of 4.4 percent in the fourth quarter of 2010, the best showing in four years.

Fourth-quarter GDP growth would have been even higher were it not for what Thredgold characterized as a “plunge” in business inventories. Businesses added to their inventories of goods at an annual rate of $7.2 billion during the fourth quarter, down from a $121.4 billion rate in the third quarter. Had businesses maintained their third quarter pace through the fourth quarter, GDP growth would have hit 7.1 percent, the highest rate in 26 years.

The sharp decline in inventories in the fourth quarter should boost demand for manufacturing output this year, Thredgold said. Most economists have revised their forecasts for GDP growth for the first quarter upward to 4 percent.

The U.S. unemployment rate fell another four-tenths to 9 percent in January. The decline of eight-tenths of a percent in the rate from November to January was the largest two-month drop since 1958.

However, nonfarm payrolls increased only an estimated 36,000 in January. Initial estimates for job gains for November and December were revised upward a total of 40,000, though. For all of 2010, payrolls grew an average of 76,000 a month. A gain of 130,000 net new jobs a month is needed to meet the needs of a growing population and keep the jobless rate stable.