Small business index ends 2011 right where it started.

A monthy measure of economic conditions for small businesses in Colorado ended 2011 at exactly the same level as it started last year.

While the small business sector has rebounded over the past year, prospects for continued improvement in the coming year could depend on what happens in Europe, the Middle East and Washington, D.C., said Jeff Thredgold, an economist who calculates the Vectra Bank Colorado Small Business Index.

Jeff Thredgold

“A significant share of Colorado economic fortunes this year will be determined by outside developments in the U.S. and global economies,” Thredgold said.

The Vectra Bank Small Business Index retreated to 112.8 in December, down seven-tenths from a revised 113.5 for November. The December reading matched the January reading, but remained more than six points above the reading for December 2010.

The index measures economic conditions from the perspective of a small business owner or manager. Lower numbers are associated with less favorable conditions.

The statewide seasonally adjusted unemployment rate, the most heavily weighted component of the index, edged down a tenth to 8 percent in November, the month for which the December 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 competing against larger firms to recruit and retain employees.

At the same time, though, nonfarm payrolls grew an estimated 25,500 over the year ending in November. Job gains push up the index because they lead to greater income and retail sales.

Nationally, nonfarm payrolls grew an estimated 200,000 in December as the jobless rate retreated to 8.5 percent, the lowest level in nearly three years.

While most states have added jobs over the past year, various external threats could affect continued economic recovery in the coming year, Thredgold said. The performances of the global and U.S. economies affect the index.

Those threats include a possible recession in Europe and increasing tensions over Iran and its potential for developing nuclear weapons, he said. In Washington, D.C., a decision looms in Congress over the extension of a payroll tax cut through the end of the year as well as an extension of unemployment benefits.