Colorado small business index retreats

Jeff Thredgold

A monthly index tracking conditions for small businesses in Colorado has retreated even as job growth in the state slows.

Low financing costs are likely to continue, though, and benefit Colorado businesses, said Jeff Thredgold, an economist who calculates the Vectra Bank Colorado Small Business Index (SBI).

“Despite high levels of political uncertainty, European politics and oil prices, one thing is certain,” Thredgold said. “Low financing costs will continue to benefit Colorado’s small businesses.”

The SBI slipped nearly three points to 117.5 in May. With declines in each of the last two months, the index stands at its lowest level since January.

The index tracks economic conditions from the perspective of a small business owner or manager. Lower numbers reflect generally less favorable conditions.

The statewide seasonally adjusted unemployment rate, the most heavily weighted of 14 components of the SBI, fell four-tenths to 8.8 percent in April, the month upon which the May index was based. 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.

At the same time, though, the pace of job growth in Colorado has slowed. For the 12-month period ending in April, nonfarm payrolls grew 8,200. That compares to a gain of 11,800 jobs in the prior year-over-year period.

For May, the statewide unemployment rate slipped another tenth to 8.7 percent while growth in nonfarm payrolls slowed to 7,700.

While uncertainty persists over the possible default of national debt in Greece and the effects of default elsewhere, low short-term interest rates are expected to continue, Thredgold said.

The Federal Reserve has kept its key short-term interest rate at a record-low range of 0 percent to 0.25 percent since December 2008. Thredgold said most forecasters expect that rate to continue through at least the end of the year.

Since small businesses tend to borrow money, financing costs are a component of the SBI.

It’s less certain whether or not the Federal Reserve will enact a third major program of monetary stimulus called quantitative easing to counter recent signs of economic slowing, Thredgold said. A $600 billion program to buy U.S. government securities to stimulate the economy concludes at the end of June.

Nationwide, nonfarm payrolls rose only 54,000 in May, far below the average increase of 220,000 over the previous three months. A net gain of 83,000 private-sector jobs was the smallest in 11 months. The U.S. jobless rate edged up a tenth to 9.1 percent.

Thredgold said he estimates a net gain of 2.2 million jobs during 2011.

The Vectra Bank U.S. Small Business Index fell to 116.1 in May, down five-tenths from a revised 116.6 in April.