The Federal Reserve cut its key short-term rate (the federal funds rate) 13 times between 2001 and 2003 in an attempt to provide monetary stimulus to a struggling economy. Such stimulus, combined with a series of tax cuts, contributed to, over the past 12 months, the strongest U.S. economic growth over the past 20 years.
Higher oil prices, combined with strong U.S. and global economic growth, have raised concerns about inflation pressures. The Fed will likely begin to deal with these inflation concerns by raising its key rate in a series of steps over the balance of the year.
Financial market players expect the Fed to raise the federal funds rate, now at a 46-year low of 1 percent, by perhaps .25 percent in late June, followed by a series of additional .25 percent increases over the balance of the year. Even as short-term interest rates likely move higher, they will remain historically low. And financing costs are the major component of Zions Bank's Small Business Index.
The Utah unemployment rate, however, remains the most heavily weighted component of the index. It was estimated at 5 percent in the latest month, up from the prior month's revised 4.7 rate.
The current 5 percent rate compares to a jobless rate of 5.9 percent during the same month one year ago. A lower Utah unemployment rate is a negative contributor to the index as it implies decreased access to Utah Labor.
Utah's unemployment rate averaged 5.6 percent in 2003, 6.1 percent in 2002 and 4.4 percent in 2001.
Total Utah employment rose by an estimated 14,900 jobs (up 1.4 percent) over the past 12 months, the strongest gain since 2000. This rise compares to a revised gain of 14,500 jobs in the prior year-over-year period. Stronger job gains, leading to greater income creation and rising retail spending, has a positive impact upon Utah's small businesses--and, therefore, the index.
The Zions Bank Small Business Index for Utah rose to 102.1 during April from a revised 101.9 during March 2004. A higher index number is associated with more favorable business conditions for Utah's small businesses.
The U.S. Department of Labor reported a net gain of 288,000 new jobs in April 2004, more than the 175,000 rise expected on Wall Street. The prior month's reported gain of 308,000 was revised higher to 337,000. The U.S. economy has added 867,000 net new jobs during 2004's first four months --the best performance in four years.
The U.S. unemployment rate was 5.6 percent in April, down slightly from March's level, and matching February's rate.
Job gains were widespread in April, as in March. The U.S. manufacturing sector has finally begun to add new jobs after 42 consecutive months of decline.
Impressive U.S. economic growth suggest that solid employment gains are likely to continue, although at a lesser monthly rate. Strong job gains should occur even as short-term interest rates begin to rise.