Small business index takes a dip

A monthly index tracking economic conditions for small businesses in Colorado has dipped for the first time in 18 months, but continues to forecast growth in the months ahead.

“In the future, a more impressive U.S. economy should set the stage for stronger Colorado economic growth,” said Jeff Thredgold, a corporate economist who calculates the Vectra Bank Colorado Small Business Index (SBI).

The SBI slipped to 120.4 in April, down 1.3 points from a revised 121.7 in March. The monthly decline was the first since September 2009, when the index stood at 70.9. In April 2010, the index stood at 101.6.

The SBI tracks economic conditions from the perspective of small business owners and managers. Lower numbers reflect less favorable conditions.

Thredgold expects a strengthening national economy over the remainder of this year to benefit small businesses in Colorado. U.S. economic growth is a component of the Colorado SBI.

Gross domestic product, the broad measure of goods and services produced in the country, grew at an annual rate of just 1.8 percent during the first quarter of 2011. That was the weakest performance since the second quarter of 2010. But Thredgold said most economists believe the low pace likely was an aberration. Higher gasoline prices and lower confidence held overall consumer spending to 2.7 percent. Severe winter weather closed businesses and curtailed construction activity. Moreover, state and local government spending declined at the fastest pace in 28 years.

Thredgold said most economists expect GDP to grow at an annual rate of 3 percent to 3.5 percent in coming quarters. The Federal Reserve forecasts growth in the 3.1 percent to 3.3 percent range. Such factors as oil prices, conflicts in North Africa and the Middle East and European sovereign debt could affect that growth, however.

The prospects for the U.S. labor market have improved as well, Thredgold said, with the estimated addition of 268,000 private-sector jobs in April, the largest monthly gain in more than five years. The U.S. economy added 940,000 net new jobs in 2010 and Thredgold expects a net gain of 2.6 million jobs in 2011. However, the U.S. lost a total of 8.7 million jobs in 2008 and 2009.

The Vectra Bank U.S. Small Business Index fell more than a point to 115.7 in April.

The statewide seasonally adjusted unemployment rate, the most heavily weighted of 14 components of the Colorado SBI, slipped a tenth to 9.2 percent in March, 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 to recruit and retain employees. Other factors associated with a lower rate, including increased incomes and retail sales, boost the index.

At the same time, the pace of job growth slowed with an estimated addition of 11,100 to nonfarm payrolls over the 12-month period which ended in March. That compares to a net gain of 15,600 jobs in the prior year-over-year period. Nonetheless, job growth has resumed after Colorado lost a total of 130,200 positions in 2010 and 2009.

Job gains leading to greater income creation and strong retail sales bolster the SBI.