Conditions for Utah's small-business owners improved a bit in October, but looming on the horizon are potentially detrimental higher short-term interest rates, according to a Zions Bank report.
The Zions Bank Small Business Index for the state, released Tuesday, rose to 113.1 in October, up from a revised 111.9 in September, aided by an increase in the unemployment rate.
The index measures business conditions from the viewpoint of the Utah small-business owner or manager. It uses 100 for calendar year 1997 as its base and includes revisions to various historical or forecast components as they become available. A higher figure is associated with favorable business conditions.
The most heavily weighted component of the index, Utah unemployment, was estimated at 4.6 percent in October, up from September's 4.4 percent rate. The index considers a low unemployment rate as a negative because it implies a tighter labor market. The 4.6 percent rate in October compares with 5.2 percent for October 2004.
Total employment in Utah rose an estimated 40,000 jobs during the past year, slightly better than the revised gain in the prior year-over-year period. Such gains are considered a positive for the index because they lead to greater income creation and increases in retail spending. Utah's 3.6 percent growth is one of the strongest annualized gains in eight years and the fourth-strongest job growth rate in the nation.
Utah's figures compare with the national unemployment rate of 5 percent, down from September's 5.1 percent rate. The country added 56,000 net jobs in October, about half the expected increase.
But the author of the report, Jeff Thredgold, leader of Thredgold Economic Associates and economic consultant to Zions Bank, cautioned that increases in short-term interest rates could harm Utah's small businesses — the majority of which the index assumes are borrowers.
"Inflation anxiety in financial markets and at the Federal Reserve strongly suggests that additional monetary tightening moves are likely in coming months," Thredgold wrote in the report. "These moves would follow a 12th consecutive monetary tightening move by the Federal Reserve's Open Market Committee" after its Nov. 1 meeting.
The Fed has boosted its key rate, the federal funds rate, to a four-year high. The 4 percent rate compares with a 46-year-low of 1 percent that was in place for a year after June 2003. Another increase is expected Dec. 13 and a 14th is anticipated Feb. 1, Thredgold said.
"Should inflation pressures and energy prices remain high, the Federal Reserve could then raise the federal funds rate to as high as 5 percent by May 2006," he wrote.
E-mail: bwallace@desnews.com