A monthly index tracking conditions for small businesses in Colorado has edged up on stronger job gains as well as the prospect interest rates will remain at record-low levels.
“Of all the issues that Colorado small businesses can worry about, extremely low interest rates aren’t one of them,” said Jeff Thredgold, a corporate economist who calculates the Vectra Bank Colorado Small Business Index (SBI).
The SBI edged up to 117.8 in March, a tenth of a point higher than the revised 117.7 for February.
The index has gained nearly six points since the beginning of the year, but remains below the 121.7 reported in March 2011.
The index measures business conditions from the perspective of a small business owner or manager. Higher levels are associated with more favorable conditions.
The statewide seasonally adjusted unemployment rate, the most heavily weighted component of the SBI, remained unchanged at 7.8 percent in February, the month for which the March index was based.
Compared to a year ago, the Colorado jobless rate has dropped eight-tenths of a percent. A lower jobless rate actually pulls down the index because it suggests less access to labor for small businesses, which typically encounter difficulty in competing against larger firms to recruit and retain employees.
However, nonfarm payrolls in Colorado grew an estimated 48,200 over the 12-month period ending in February. That compares to a revised gain of
46,800 jobs in the prior year-over-year period. Stronger job gains push up the SBI because they promote income creation and retail sales.
Meanwhile, record low interest rates are likely to continue and in turn, help small businesses that tend to borrow money to help finance their operations, Thredgold said. Short-term financing costs are a component of the SBI.
Given the fits and starts of national job growth, the Federal Reserve is likely to maintain its federal funds rate at an historically low range of 0 to 0.25 percent, Thredgold said.
The key short-term interest rate has remained at that level since December 2008 and the Federal Reserve Open Market Committee has announced it expects the rate to hold steady until late 2014 unless improving economic performance merits an increase.
In March, nonfarm payrolls in the U.S. grew an estimated 120,000, about half the average gains for the previous three months.
At the same time, though, there are expectations in the financial market the Federal Reserve could provide another round of monetary stimulus, Thredgold said.