Weak employment data reported on March 5 will further delay any monetary tightening moves by the Federal Reserve. Financial markets had expected the Fed to raise its key short-term interest rate, the federal funds rate, from its current 46-year low of 1.00 percent to perhaps 1.25 percent during 2004's third quarter, with the expectation of another 0.25 percent rate increase in the year's final few months.
That view has now changed. Financial markets now expect perhaps one small tightening move late this year, with a solid chance of no Federal Reserve activity until next year.
Low interest rates have helped both the consumer sector and the business sector in recent years to reduce interest payments. However, millions of retirees have been hurt by low interest rate payments on savings and investments.
This era of low interest rates is likely to continue for some time. Business financing costs are an element of the Utah Small Business Index.
The Utah unemployment rate, the most heavily weighted component of the Small Business Index for Utah, was estimated at 5.0 percent in the latest month, down from the prior month's revised 5.3 percent rate. The 5.0 percent rate compared to a jobless rate of 6.0 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. By comparison, the 3.2 percent average during 2000 was one of the lowest annual rates since the early 1950s. These rates compare to an average Utah unemployment rate of 3.5 percent between 1995 and 1999.
Total Utah employment rose by an estimated 11,600 jobs (up 1.1 percent) over the past 12 months, the strongest gain since 2001. This rise compares to a revised gain of 6,300 jobs in the prior year-over-year period.These totals compare to gains averaging 38,300 new jobs annually during the 1994-2000 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 Small Business Index for Utah declined to 105.3 during February 2004 from a revised 105.8 during January 2004, primarily led by stronger Utah job gains and more solid U.S. economic growth. The Index measures business conditions from the viewpoint of the Utah small business owner or manager.
A lower Index number is associated with less favorable business "conditions" for Utah's small businesses. The Index uses 100.0 for calendar year 1997 as its base year. The Index also includes revisions to various historical or forecast components as they become available, including more annualized data for 2003 and various component forecasts for 2004.
Nationally the U.S. Department of Labor reported the net gain of only 21,000 new jobs in February 2004, much less than the 125,000 rise expected on Wall Street. The prior month's reported gain of 112,000 jobs was revised lower to 97,000 jobs. While the U.S. economy has added 364,000 net new jobs during the past six months, the best performance in more than three years, the gain has been disappointing.
The U.S. unemployment rate was 5.6 percent in February, unchanged from January's rate. June 2003's 6.3 percent rate was the highest in nine years.
The U.S. economy has now added jobs for six consecutive months, although the average gain of 61,000 jobs per month has been substandard. The economy needs to add an average of 110,000 net new jobs each month just to keep up with modest growth of the U.S. population. This level of job creation would leave the unemployment rate roughly unchanged.
A lower unemployment rate would require an average monthly gain of 150,000 to 200,000 jobs.