Colorado small business index kicks off new year with gain

A monthly index tracking conditions for small businesses in Colorado increased in January, kicking off a year in which most economic growth is expected to come from within the state.

“Most of Colorado’s 2012 economic growth will be generated internally, as the overall U.S. economy will provide little boost,” said Jeff Thredgold, a corporate economist who calculates the Vectra Bank Colorado Small Business Index (SBI).

Jeff Thredgold

The SBI climbed to 116 in January, up four points from a revised 112 for December and its highest reading since March. At this time last year, the index stood at 112.8.

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

The statewide seasonally adjusted unemployment rate, the most heavily weighted component of the SBI, slipped a tenth to 7.9 percent in December, the latest month for which estimates are available. 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 in recruiting and retaining employees.

At the same time, though, nonfarm payrolls in Colorado grew an estimated 24,400 over the 12-month period ending in December. While lower than the 26,900 payroll gain in the previous year-over-year period, job gains pull up the index because they promote income creation and stronger retail sales.

Modest national economic growth has added little to the performance of the small business sector in Colorado, Thredgold said, adding the trend likely will continue in 2012. Regional, national and global economic performance are all components of the SBI. Stronger performances boost the index.

Most forecasting economists expect gross domestic product, the broad measure of goods and services produced in the United States, to grow at an annual inflation-adjusted rate of about 2.2 percent, Thredgold said.

That rate is faster than the 1.7 percent growth posted in 2011, yet slower than the 3 percent growth in 2010.

A number of factors could curb growth in 2012, Thredgold said, including ongoing financial stress in Europe, high energy prices, weak U.S. housing markets and ongoing anxiety about the size and direction of the U.S. government. Federal budget deficits have exceeding $1.2 trillion in each of the last three years.

Meanwhile, though, the odds of the economy soon returning to recession have diminished, Thredgold said.

The national labor market has shown signs of improvement, Thredgold said. According to the latest Labor Department estimates, nonfarm payrolls grew 243,000 in January, far more than consensus forecast of 135,000 net new jobs. Moreover, initial estimates for job gains in December and November were revised upward a total of 60,000.

The U.S. unemployment rate retreated two-tenths of a point to 8.3 percent in January, the lowest level in nearly three years.

After net job losses totalling 8.7 million in 2008 and 2009, the U.S. economy regained more than 1 million jobs in 2010 and more than 1.8 million jobs in 2011.