National recession more official than ever
The National Bureau of Economic Research's business cycle dating committee recently indicated that the current recession in the United States officially began in December 2007.
The national research bureau defines a recession as a significant decline in activity spread across the economy lasting more than a few months, normally visible in production, employment, real income and several financial indicators.
The current recession, now in its 13th month, is likely to be the longest since the Great Depression, indicated Jeff Thredgold, economic consultant to Zions Bank. The present downturn has already exceeded the duration of eight-month recessions from July 1990 to March 1991 and March 2001 to November 2001.
Recent consensus estimates of economists suggested a return to modest, but positive U.S. economic growth the second half of 2009, pointed out the latest Utah Small Business Index. The anticipated development means the current recession would last 18 to 20 months. However, the severity of reported employment losses, combined with the anxious domestic and global credit markets, suggests the economic forecasts could be stretched out by a quarter or two.
Interest rate decreases have picked up speed around the globe, with substantial cuts by central banks in Europe, the United Kingdom, China, Sweden and New Zealand, noted the economic consultant. The reductions, with additional cuts expected, were made in response to a growing awareness that the global economy is likely in recession.
For the first time in the post-World War II period, the United States, Europe and Japan have entered into recessions at the same time.
One component of the Utah Small Business Index relates to U.S. economic performance, explained Thredgold. Weaker nationwide performance pulls the number lower. The index also assumes that the majority of small businesses are net borrowers. Therefore, an interest rate cut will push the index higher.
The small business index for Utah registered at 82.9 during November 2008, declining from a revised 83.7 in October 2008. The index uses 100 for 1997 as the base calendar year and a lower number is associated with less favorable business conditions.
The Utah unemployment rate - the most heavily weighted component of the small business index - was estimated at 3.5 percent in the latest month, unchanged from the 3.5 percent rate of the prior month. The 3.5 percent rate compares to a 2.8 percent rate during the same month one year ago. A higher Utah unemployment rate is a positive contributor to the Index as it implies increased access to Utah labor.
Utah's unemployment rate averaged 2.7% in 2007, 3.0% in 2006, 4.2% in 2005, and 4.9% during the 2000-2004 period. These rates compare to an average Utah unemployment rate of 3.5% between 1995 and 1999.
Total Utah employment declined by an estimated 2,200 jobs (down 0.2 percent) over the past 12 months. This decrease compares to a revised gain of 700 jobs in the prior year-over-year period. The 0.2 percent decline marks the first 12-month employment decline since the July 2002 to July 2003 period.
Utah added 47,800 jobs in 2007, 55,700 jobs in 2006, 43,700 jobs in 2005, and 30,200 jobs in 2004. These totals compare to gains averaging 38,000 new jobs annually during the 1994-2000 period and a net loss of 1,300 jobs in 2001 through 2003. More recently, job losses, leading to lesser income creation and softer retail spending, have a negative impact upon Utah's small businesses...and therefore, the Index.
The U.S. Department of Labor reported a net loss of 533,000 jobs in November 2008, the 11th monthly decline in a row, and the worst monthly job report in 34 years. In addition, previously estimated job losses during September and October were revised higher by 199,000 jobs.
The U.S. unemployment rate jumped to 6.7% in November, the highest in 15 years. The current 6.7 percent jobless rate is a full 2.0 percent higher than the 4.7 percent rate of one year ago. The average hourly wage rose 0.4% (seven cents) to $18.30 hourly, a rise of 3.7% over the past 12 months.
Goods-producing employment continued to decline in November, with a net loss of 163,000 jobs. Manufacturing employment fell by 85,000 positions, while construction lost another 82,000 jobs. Mining added 4,000 jobs during the month.
Service-providing employment also declined sharply in November by 370,000 positions. The professional and business services sector lost 136,000 jobs, while the leisure & hospitality sector lost 76,000 jobs. The retail trade sector lost 91,000 jobs in November, reflecting weak Holiday sales. The education & health services sector added 52,000 jobs in November, while the government sector added 7,000 jobs.
The estimated net decline of 1.9 million jobs during 2008's first 11 months represents a painful contrast to the average annual gain of 1.9 million net employment opportunities created from 2005 to 2007. The losses are likely to build in coming months as the U.S. economy struggles with likely the worst recession since the Great Depression, concluded Thredgold.