Colorado small business index forecasts faster growth

A monthly index tracking conditions for small businesses in Colorado continues to rise, forecasting accelerating economic growth.

“Don’t look now, but the Colorado economy is likely to pick up speed over the balance of the year,” said Jeff Thredgold, a corporate economist who calculates the Vectra Bank Colorado Small Business Index (SBI).

Jeff Thredgold

The SBI climbed to 117.3 in February, up six-tenths of a point from a revised 116.7 in January. The SBI has advanced to its highest point in nine months, although the index was higher still at 120.6 in February 2011.

The SBI measures economic conditions from the perspective of a small business owner or manager. Higher levels are associated with generally more favorable conditions.

The statewide seasonally adjusted unemployment rate, the most heavily weighted component of the SBI, slipped a tenth of a point to 7.8 percent in January, the latest month for which estimates are available.

A lower jobless rate actually pulls down the SBI because it suggests less access to labor for small businesses, which typically encounter difficulty in competing with bigger firms to recruit and retain employees.

But other factors associated with lower unemployment, including job gains and higher income levels, pull the SBI higher. Nonfarm payrolls in Colorado grew an estimated 19,500 in February and 43,400 over the past year. The latest annual gain far exceeded the previous year-over-year gain of 30,400 jobs.

Job gains nationwide similarly bolster incomes and will help boost the Colorado economy, Thredgold said. It remains to be seen, though, whether or not job gains will push U.S. economic growth higher.

According to Labor Department estimates for February, U.S. payrolls rose 227,000 in February with gains spread across a range of industry sectors. Initial estimates for job gains for the previous two months also were revised upward a combined 61,000. After retreating eight-tenths of a percent since August, the U.S. unemployment rate held steady in February at 8.3 percent, a three-year low.

Still, only about 40 percent of the 8.5 million jobs lost during the Great Recession have been regained. And U.S. economic growth since the recovery officially began in July 2009 has been the weakest since the 1940s, Thredgold said.

Gross domestic product, the broad measure of goods and services produced in the country, grew at an annual rate of 3 percent in 2010, but only 1.7 percent in 2011. GDP is forecast to grow at between 2.2 percent and 2.5 percent in 2012, Thredgold said.

The U.S. faces economic headwinds from weak home values, higher energy costs and the mounting debt of the federal government, he added.