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Consumer Confidence

The Zions Bank Utah Consumer Attitude Index increased 9.6 points to 115.4 in March. The U.S. Consumer Confidence Index increased 2.2 points to 96.2 in the same period.

Housing Market

In February, the CoreLogic® Home Price Index (HPI) for Utah, which measures home price appreciation, experienced a year-over-year increase of 7.0%. Nationally, the HPI increased 6.8% during the same period.

Inflation

The Zions Bank Utah Consumer Price Index decreased 0.4% from January to February for a trailing 12-month inflation of 1.8%. In the same period, the U.S. CPI decreased 0.2% for a trailing 12-month inflation of 1.0%.

Job Report

Utah’s unemployment rate remained unchanged at 3.4% in February, and the national unemployment rate remained unchanged at 4.9% in February.

May 2016

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Randy Shumway January 2015

Utah Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

“The overarching goal of this year’s legislature was, as always, to expand Utah’s focus on educational opportunity, economic growth, and effective policy.”

The 2016 Utah Legislative Session concluded on March 10, wrapping up a session that involved the introduction of hundreds of pieces of legislation, including resolutions, memorials, and appropriations bills. Many bills focused on issues that will have a direct and real impact on Utah’s economy in the coming year.

Education remains the top priority for the governor and the legislature. The Utah legislature and the Governor worked to once again increase overall public education funding. Late last year Governor Herbert requested $422 million for the education budget, and overall funding will ultimately surpass that amount. Over 70 percent of new revenue added to the budget is dedicated to K-12 and higher education. The legislature passed one bill that allocates over $11 million toward expanding public preschool. Studies have shown that early childhood education has a measurable impact on subsequent elementary school success. The bill is designed to give parents more preschool options through private schools, public schools, and online home-based programs and is targeted to children in low-income families who show early academic warning signs. On the opposite end of the education range, colleges and universities received funding increases for instructor compensation and for developing industry-driven academic programs.

In another bill, Utah’s student assessment of growth and excellence (SAGE) testing was removed from the teacher evaluation process. Opt-out rates for the SAGE test are growing, which lowers overall scores by which teachers and schools are evaluated. The legislation sparks questions about future education assessment and ways that schools can objectively measure academic achievement. Another bill allows high schools to not administer the SAGE test to 11th graders since they take the ACT test during their junior year.

Healthcare was another major topic during the legislative session. Governor Herbert approved a bill that will expand Medicaid coverage to the most needy. The bill, although hotly contested last year, passed the legislature this year with little drama as it was supported by community, business, and political leaders. Although some minority leaders pushed to adopt full Medicaid expansion available under the Affordable Care Act, that legislation did not pass.

In addition to education and healthcare, other notable bills included a proposed $27 million three-year funding plan to provide housing and services to the homeless, of which the first installment totals $9.25 million. A clean energy bill approved $150,000 to set up a program that offers grants to people who convert their vehicles to clean burning fuel. The overarching goal of this year’s legislature was, as always, to expand Utah’s focus on educational opportunity, economic growth, and effective policy.

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Utah State Capital Building in Salt Lake City, UT

Short-Term U.S. Outlook

U.S. GDP growth in the fourth quarter of 2015 was revised upward to 1.4 percent at the end of March. While fourth-quarter growth slowed in comparison to third-quarter growth, the decline was not as sharp as the previous estimate of 1.0 percent. The annual GDP growth rate for 2015 averaged 2.4 percent for the year. Consumer spending rose 2.4 percent in the fourth quarter—up from the previous estimate of 2 percent due to higher consumption of services. Some economists attribute the uptick in spending to the improving labor market, which is steadily, although slowly, lifting wages. Home prices are rising, and gasoline prices remain low, thereby elevating household discretionary spending.

On the downside, inventory investment for the fourth quarter was revised lower, but still remains high relative to domestic demand. Corporate profits fell for a second straight quarter because multi-national companies saw lower earnings as a result of a strong dollar and cheap oil. Additionally, profits after tax and profits from current production fell. Manufacturing profits alone dropped $139.2 billion in the fourth quarter. Overall, profits dropped 5.1 percent in 2015, which represents the largest decline since 2008. First-quarter GDP growth is expected to be around 1.5 percent.

The value of the U.S. dollar continues to increase against a basket of currencies. In 2015, the dollar gained 10.5 percent against the U.S.’s major trading partners. While a rising dollar speaks to the relative strength of the economy, it can have negative repercussions. For instance, multi-national companies and large export-driven companies see lower volumes of goods ordered due to the relatively higher price for customers. Falling oil prices further contribute to manufacturing profit losses.

The Federal Reserve did not raise interest rates again in March, but continues to plan to gradually raise rates over time, as indicated during the first rate hike last December. The uncertainty of the global economic outlook played a role in the Federal Reserve’s monetary policy actions. In fact, the risk of a global economic slowdown was a key factor in the decision to not raise interest rates in March. As the Federal Open Market Committee considers when to raise rates next, it will be closely monitoring inflation, personal consumption expenditures, and other economic data.

Long-Term U.S. Outlook

The outlook for the global economy remains somewhat uncertain. IMF head Christine Lagarde announced that the recovery is slow and fragile, urging governments to take action to preserve the recovery. Since sluggish growth can lengthen economic stagnation, it can in turn promote protectionist policies that further hurt the economy. China’s slowing growth and increased integration into the global economy introduces a measure of potential volatility into markets worldwide. However, there are no imminent warning signs that the global economy is necessarily suffering or headed for a downturn.

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US Consumer Price Index rose 0.2% Utah Consumer Price Index decreased 0.4%

U.S. Consumer Price Index

The Zions Bank Wasatch Front Consumer Price Index (CPI) decreased 0.4 percent from January to February on a non-seasonally adjusted basis. The index has increased 1.8 percent since this same time last year, which is very near the Federal Reserve’s national inflation target of 2 percent. The national Consumer Price Index decreased 0.2 percent from January to February and has increased 1.0 percent over the last year.

Falling 2.7 percent from the month before, transportation prices were the primary driver of the decrease in Utah’s February CPI. Gas prices, and rates for insurance and airfare declined. Crude oil prices steadily rose through the first half of the month before falling sharply. Slightly lower prices for clothing and medical care prices also contributed to the overall decline in Utah’s February CPI.

Food prices—both at and away from home—increased in February, reflecting normal inflation patterns compounded with the effects of the drought in the Southwest and California. Although the national Producer Price Index decreased 0.2 percent in February, the decline was primarily driven by falling energy prices. This month marked the first time since January 2015 that the year-over-year PPI did not decrease. With the dollar losing some momentum, import deflation is beginning to wane, thereby boosting food prices slightly.

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National Unemployment Rate decreased to 4.9% Unemployment rate in Utah remains at 3.4%

Labor Market

The unemployment rate in Utah remained unchanged from last month’s rate, holding at 3.4 percent in February. The state’s year-over-year growth in total employment grew slightly from 3.0 percent in January to 3.3 percent in February. Compared to a year ago, Utah has added 44,700 jobs to the economy, with the current employment level registering at 1,395,100. The United States’ unemployment rate remained unchanged this month at 4.9 percent.

Although several services sectors posted net employment losses, including natural resources and mining, eight other private sector industry groups posted net job increases. The largest private sector employment increases were in education and health services; trade, transportation and utilities; and leisure and hospitality. Furthermore, only 5 of 29 counties in Utah posted net decreases in employment. With employment gains in a broad variety of sectors and areas, Utah’s labor market is on pace for continued prosperity.

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Utah Consumer Attitude Index increased 0.1 points National Consumer Attitude Index rose 2.2 points

Utah Consumer Attitude Index

The Zions Bank Utah Consumer Attitude Index (CAI) increased 9.6 points to 115.4 in March. Increasingly positive perspectives regarding both the present circumstances of the economy and expectations for the future led to this strong escalation. The CAI currently sits 1.0 point lower than its level 12 months ago. In comparison, the national Consumer Confidence Index® increased 2.2 points from February to March and currently sits at 96.2.

Expectations for the next six months increased 11.5 points in March due to a more positive outlook on business conditions and future job availability. Compared to February, more Utahns think business conditions in their area will be better in six months—up from 25 percent to 27 percent in March. Twelve percent of Utahns think there will be fewer jobs available in their area six months from now—a four-point decline since last month. In line with this expectation for job opportunities, 35 percent of Utahns expect their household income to be higher six months from now—an 8-percent increase since this time last year.

The Present Situation Index, the sub-index of the CAI that measures how consumers feel about current economic conditions, has risen 6.7 points since last month and 7.7 points since this time last year. Forty-nine percent of Utahns describe available jobs in their area as plentiful, a 4-percent increase since last month, and a 14-percent increase since last year. However, forty-nine percent of Utahns rate general business conditions in their area as good—a 5-percent decrease since last month and a 4-percent decrease since last year.

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Utah CoreLogic Home Price Index rose 7.0% National CoreLogic Home Price Index up 6.8%

Housing Market

Home prices rose slightly both across the nation and in Utah in February. Utah’s home prices increased 0.7 percent from January to February, and have grown 7.0 percent since February 2015. Nationally, home prices increased 1.1 percent month over month and 6.8 percent year over year. National home prices for single-family homes, including distressed sales, are forecasted to rise by 0.6 percent in March 2016, and by 5.2 percent by February 2017.

Although home prices remain 6.5 percent below peak values recorded in April 2006, the U.S. has experienced 48 consecutive months of year-over-year increases, including distressed sales, indicating progress toward a full recovery. A new peak level in home prices is expected to be reached in May 2017. In Utah, home prices are forecasted to increase 0.4 percent this month and 5.4 percent in the next year. Salt Lake County in particular is expected to see continued housing market strength—in 2015, the number of single-family homes sold represented a value of $4.1 billion and a 22-percent increase from the previous year. With demand outpacing available inventory, houses remain a wise investment in Utah.

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Loving and Giving to Utah

Just a few days after the close of the Utah Legislative Session, nonprofit organizations in Utah launched high-profile email, news, and social media campaigns to solicit donations and support as part of the Community Foundation of Utah’s annual “Love Utah Give Utah” event. The event began in 2013 and is designed to support nonprofit organizations in Utah by encouraging residents to give to the organizations they care about most that primarily serve individuals living in Utah. This year’s Love Utah Give Utah event was held on March 31 and raised a total of $1,229,800 from 15,491 donors in one day.

Love Utah Give Utah emphasizes encouraging a large number of philanthropists to donate rather than asking a more select few to make large donations. Nonprofit organizations compete for additional funds by trying to collect the largest number of donations. The nonprofits are divided into different categories depending on the size of their organizations, and the top recipients in each category can receive up to $10,000. Top recipients this year included Humane Society of Utah, Salt Lake School for the Performing Arts, HEAL Utah, Community Animal Welfare Society, Utah Animal Advocacy Foundation, and Children and the Earth.

Donations are vital for the viable and effective operation of nonprofit organizations throughout the state, and each donation has an impact. These organizations contribute to the economy by providing essential services to people in their local communities who need them most.

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MHand holding tablet computer with overlay of nighttime cityscape

Turning around the struggling trend of U.S. Entrepreneurship

Your smartphone’s bright screen offers a glimpse into the colorful startup movement born in Silicon Valley. As new technology companies regularly grab headlines with astronomical valuations, entrepreneurship seems to be at its cultural prime. However, in reality, successful startups are increasingly few and far between. Recent statistics show that more companies close than open their doors for business every year. Surprisingly, the U.S. now ranks 12th among developed nations in terms of startup activity. And from 1978 – 2011, the nation’s firm entry rate, which measures the share of new firms in the marketplace, fell by nearly half.

Entrepreneurship is vital to both the economy and to society. Startups increase economic and social mobility, thus growing the middle class. New firms historically account for nearly all net new job creation and a shocking 20 percent of gross job creation in our country. Innovation and technological improvements driven by entrepreneurship led to half of the total increase in U.S. productivity growth in the second half of the 20th century.

Entrepreneurship is good for business, good for labor, and good for society. But the recent Great Recession still casts a considerable shadow: credit remains tight for American businesses, and credit can spell life or death for startups. In 2014, only half of businesses with more than $1 million in revenue were able to secure credit. Between 2005 and 2014, the size of seed investments made by venture capitalists was flat, and it has been sloping downward since. Incubation programs are expanding, but only for companies with proven customer demand, business models, and management teams. Under these conditions, it’s hard for entrepreneurs to find funding for new ideas.

Amid these challenges, some entrepreneurs are finding success in environments that offer incentives for innovation while simultaneously decreasing barriers to entry. For instance, Austin, Texas, is developing a reputation as a thriving hub for small businesses. The city’s tax code was recently ranked first in the nation for being friendly to small businesses, and many entrepreneurs are relocating from the Bay Area to take advantage of lower corporate taxes and cost of living. Additionally, a variety of investment resources are available in Austin that help incubate startup companies. In 2014, Austin’s tech companies alone received more than $1 billion in investment, and that figure is expected to continue to grow. Currently, more than 4,700 high-tech companies are operating in Austin’s metropolitan area.

While Austin has long been regarded as a promising business environment, Detroit is a more surprising example of recent startup success. Muddled by bankruptcy and an auto industry that often seems entrenched in its nearly century-old habits, Detroit has emerged newly poised for reinvention. In 2012, the city instigated a simpler, more competitive corporate income tax. With an average leasing rate at just a third of San Francisco’s rate, office space is more affordable. Plus, a state-sponsored funding arm dedicates $25 million annually to technology accelerators, incubators, venture funding and grants. Lower costs and business-friendly policies have attracted new growth: in 2014 alone, almost 250 new technology companies were started in Michigan, with private investment totaling $770 million.

As Austin and Detroit demonstrate, new businesses need not suffocate in an atmosphere of tight lending. Policy-incentivized investments and entrepreneur-friendly tax code adjustments can measurably help startups incubate. In a country where the entrepreneurial spirit is an integral part of both the national identity and the economy, policymakers have a chance to rekindle the American Dream by increasing incentives for innovation and by decreasing barriers to entrepreneurship.

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Consumer Confidence

The U.S. Consumer Confidence Index® increased 2.2 points to 96.2 in March. The Present Situation Index decreased 1.5 points to 113.5, and the Expectations Index increased 4.8 points to 84.7.

Housing Market

In February, the CoreLogic® Home Price Index (HPI) for Idaho, which measures home price appreciation, experienced a year-over-year increase of 8.4%. Nationally, the HPI increased 6.8% during the same period.

Inflation

The U.S. Consumer Price Index decreased 0.2% from January to February. Year over year, the index increased 1.0%, which is below the Federal Reserve’s target annual inflation pace of 2%.

Job Report

Idaho’s unemployment rate remained unchanged at 3.9% in February, and the national unemployment rate also remained unchanged at 4.9% in February.

May 2016

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Randy Shumway January 2015

Idaho Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

“Overall, the legislature made significant improvements to funding key sectors of Idaho’s economy.”

The 2016 Idaho Legislative Session concluded on March 25 with the passage of approximately 360 pieces of legislation—nearly a third more than last year. This year’s session lasted 75 days in comparison to last year’s 89 days plus a 1-day special session. Overall, the legislature approved $3.27 billion in general fund spending, which averaged out to about $44 million per day of the session.

Education is always a major priority for the Idaho legislature and the governor. Education funding increased by 7.4 percent for the second year in a row, bringing over $210 million more to the classroom next year in comparison with two years ago. The legislature also authorized step two in a five-year plan to better evaluate and compensate teachers. They also boosted investment in public education by approving a $1.58 billion K-12 school budget. Higher education received additional funding totaling $279.6 million for the budget. Nine million dollars was approved to expand reading intervention for over 35,000 students from kindergarten through third grade who are currently reading below grade level. In other aspects of education, the Legislature passed a bill allowing the Bible to be used in Idaho public schools for reference purposes to further the study of literature, comparative religion, languages, history, government, and other topics where understanding of the Bible is useful or relevant. Previously, its use in school was prohibited.

The most dramatic legislative discussions centered around healthcare. A proposal to help 78,000 poor and uninsured Idahoans with a modest state-funded plan was introduced. After that didn’t pass, legislators renewed efforts to seek a federal waiver for a customized implementation of Medicaid expansion authorized under the Affordable Care Act. The campaign ultimately failed but was discussed up until the end of the session. Other proposed healthcare initiatives included the “Right to Try,” which would allow terminally ill patients to use experimental drugs with their doctor’s approval. Abortion remained a hot topic—a bill passed that requires women seeking abortion to receive a list of free ultrasound providers. Lawmakers also banned the practice of harvesting tissue from aborted fetuses for research.

Overall, the legislature made significant improvements to funding key sectors of Idaho’s economy. Other bills that passed included lifting a ban on the state’s efforts to comply with REAL ID, the stricter federal identification requirements. The Legislature unanimously backed a move to bolster the state’s public defense system, including $5.4 million in new funding. The overarching goal of this year’s legislature, as always, was to expand Idaho’s legacy of economic growth and effective policy.

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Idaho State Capital Building in Boise, ID

Short-term U.S. Outlook

U.S. GDP growth in the fourth quarter of 2015 was revised upward to 1.4 percent at the end of March. While fourth-quarter growth slowed in comparison to third-quarter growth, the decline was not as sharp as the previous estimate of 1.0 percent. The annual GDP growth rate for 2015 averaged 2.4 percent for the year. Consumer spending rose 2.4 percent in the fourth quarter—up from the previous estimate of 2 percent due to higher consumption of services. Some economists attribute the uptick in spending to the improving labor market, which is steadily, although slowly, lifting wages. Home prices are rising, and gasoline prices remain low, thereby elevating household discretionary spending.

On the downside, inventory investment for the fourth quarter was revised lower, but still remains high relative to domestic demand. Corporate profits fell for a second straight quarter because multi-national companies saw lower earnings as a result of a strong dollar and cheap oil. Additionally, profits after tax and profits from current production fell. Manufacturing profits alone dropped $139.2 billion in the fourth quarter. Overall, profits dropped 5.1 percent in 2015, which represents the largest decline since 2008. First-quarter GDP growth is expected to be around 1.5 percent.

The value of the U.S. dollar continues to increase against a basket of currencies. In 2015, the dollar gained 10.5 percent against the U.S.’s major trading partners. While a rising dollar speaks to the relative strength of the economy, it can have negative repercussions. For instance, multi-national companies and large export-driven companies see lower volumes of goods ordered due to the relatively higher price for customers. Falling oil prices further contribute to manufacturing profit losses.

The Federal Reserve did not raise interest rates again in March, but continues to plan to gradually raise rates over time, as indicated during the first rate hike last December. The uncertainty of the global economic outlook played a role in the Federal Reserve’s monetary policy actions. In fact, the risk of a global economic slowdown was a key factor in the decision to not raise interest rates in March. As the Federal Open Market Committee considers when to raise rates next, it will be closely monitoring inflation, personal consumption expenditures, and other economic data.

Long-Term U.S. Outlook

The outlook for the global economy remains somewhat uncertain. IMF head Christine Lagarde announced that the recovery is slow and fragile, urging governments to take action to preserve the recovery. Since sluggish growth can lengthen economic stagnation, it can in turn promote protectionist policies that further hurt the economy. China’s slowing growth and increased integration into the global economy introduces a measure of potential volatility into markets worldwide. However, there are no imminent warning signs that the global economy is necessarily suffering or headed for a downturn.

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UNational Consumer Price Index increased 0.2%

U.S. Consumer Price Index

The national Consumer Price Index (CPI) declined 0.2 percent from January to February on a non-seasonally adjusted basis. The national CPI has increased 1.0 percent over the last year, which is near the Federal Reserve’s annual inflation target of 2 percent.

The overall decrease in CPI was driven by declines in the energy index that more than offset increases in the indexes for food and for all items less food and energy. The gasoline index declined 13.0 percent, and the indexes for fuel oil and electricity also decreased 2.9 percent and 0.2 percent, respectively. This month marks the third consecutive month of declines for the energy index.

Meanwhile, the food index increased 0.2 percent in February, as the food at home index increased for the first time since September. The index for all items less food and energy—a less-volatile measurement of prices—increased 0.3 percent in February, continuing the slight inclines seen every month since September. The increase was driven by higher prices for shelter, apparel, and medical care, though all major components increased in February. Over the last 12 months, the index for all items less food and energy has increased 2.3 percent.

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National Unemployment Rate stays at 4.9% Unemployment rate in Idaho remains at 3.9%

Labor Market

Idaho’s unemployment rate remained unchanged from January to February at 3.9 percent. February marked Idaho’s largest increase in seasonally adjusted nonfarm jobs since 2006, which grew by 4.0 percent year over year, or 26,400 total jobs. The strongest employment gains occurred in the leisure and hospitality, transportation, warehousing and utilities, construction, and other services. Mining and logging was the only sector that experienced an employment decline this month. The United States’ unemployment rate remained unchanged this month at 4.9 percent.

In the decade spanning 2012–2022, Idaho payroll jobs have been projected to grow 16.3 percent. Idaho’s labor market is not only outpacing the national economy, but is also outperforming these already-ambitious projections. Furthermore, 12 industries in Idaho have posted higher-than-expected growth rates since that time, indicating a robust recovery from the Great Recession. Idaho’s economy is on pace to continue recovering in a way that will benefit broad segments of its resident population.

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National Consumer Attitude Index rose 2.2 points

U.S. Consumer Confidence Index

The Conference Board’s U.S. Consumer Confidence Index increased 2.2 points to 96.2 in March. Although the Present Situation Index, which measures sentiment about the current state of the economy, declined slightly from 115.0 to 113.5, the Expectations Index increased from 79.9 to 84.7—indicating strong confidence in the state of the economy six months out and leading to the overall increase in consumer confidence.

Consumers’ assessment of current conditions was less favorable as the percentage of consumers who felt business conditions were “good” tapered from 26.5 percent in February to 24.9 percent in March. However, fewer people stated current business conditions were “bad”—down to 18.8 percent in March from 19.0 percent in February. Opinions of the labor market were also mixed: the percentage of consumers who claimed that jobs are “plentiful” increased from 22.8 percent to 25.4 percent, whereas the percentage who claimed jobs are “hard to get” also rose from 23.6 percent to 26.6 percent.

Meanwhile, consumers are more optimistic about the future: the percentage of consumers who expect business conditions to improve increased from 14.5 percent in February to 15.0 percent in March. Perspectives about the job market are also optimistic—those who anticipate more jobs in the months ahead increased from 12.2 percent to 12.9 percent.

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Idaho CoreLogic Home Price Index rose 8.4% National CoreLogic Home Price Index up 6.8%

Housing Market

Home prices continued to rise slightly across the nation and in Idaho. Idaho’s home prices increased 0.8 percent from January to February, and have risen 8.4 percent since February 2015. Nationally, home prices increased 1.1 percent month over month and 6.8 percent year over year. National home prices for single-family homes, including distressed sales, are forecasted to rise by 0.6 percent in March 2016, and by 5.2 percent by February 2017.

Although home prices remain 6.5 percent below peak values recorded in April 2006, the U.S. has experienced 48 consecutive months of year-over-year increases, including distressed sales, indicating progress toward a full recovery. A new peak level in home prices is expected to be reached in May 2017. Low fixed-rate mortgage rates and strong trends in employment growth fuel expectations for the Idaho housing market, wherein home prices are forecasted to increase 0.2 percent this month and 3.7 percent in the next year.

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Hand holding two coins

Giving to Idaho

Two months after the close of the Idaho Legislative Session, nonprofit organizations throughout Idaho have geared up for what may be their biggest fundraising day of the year on May 5th. “Idaho Gives” is a one-day giving blitz in which Idahoans come together to support the nonprofit organizations that serve their local communities. The Idaho Nonprofit Center, which organizes the event, represents the interests of over 5,500 registered nonprofits with more than 52,000 employees and over 425,000 volunteers.

Idaho Gives emphasizes encouraging a large number of philanthropists to donate rather than asking them to make large donations. Nonprofit organizations compete for additional funds by trying to collect the largest number of donations. The nonprofits are divided into different categories depending on the size of their organizations, and the top recipients in each category can receive additional cash prizes. In addition, golden ticket awards are randomly given throughout the day. The name of a donor who contributed during the designated hour will be randomly selected, and the nonprofit he or she contributed to will receive $1,000.

Donations are vital for the viable and effective operation of nonprofit organizations throughout the state, and each donation has an impact. These organizations contribute to the economy by providing essential services to people in their local communities who need them most.

Read more Read more
Hand holding tablet computer with overlay of nighttime cityscape

Turning around the struggling trend of U.S. Entrepreneurship

Your smartphone’s bright screen offers a glimpse into the colorful startup movement born in Silicon Valley. As new technology companies regularly grab headlines with astronomical valuations, entrepreneurship seems to be at its cultural prime. However, in reality, successful startups are increasingly few and far between. Recent statistics show that more companies close than open their doors for business every year. Surprisingly, the U.S. now ranks 12th among developed nations in terms of startup activity. And from 1978 – 2011, the nation’s firm entry rate, which measures the share of new firms in the marketplace, fell by nearly half.

Entrepreneurship is vital to both the economy and to society. Startups increase economic and social mobility, thus growing the middle class. New firms historically account for nearly all net new job creation and a shocking 20 percent of gross job creation in our country. Innovation and technological improvements driven by entrepreneurship led to half of the total increase in U.S. productivity growth in the second half of the 20th century.

Entrepreneurship is good for business, good for labor, and good for society.

But the recent Great Recession still casts a considerable shadow: credit remains tight for American businesses, and credit can spell life or death for startups. In 2014, only half of businesses with more than $1 million in revenue were able to secure credit. Between 2005 and 2014, the size of seed investments made by venture capitalists was flat, and it has been sloping downward since. Incubation programs are expanding, but only for companies with proven customer demand, business models, and management teams. Under these conditions, it’s hard for entrepreneurs to find funding for new ideas.

Amid these challenges, some entrepreneurs are finding success in environments that offer incentives for innovation while simultaneously decreasing barriers to entry. For instance, Austin, Texas is developing a reputation as a thriving hub for small businesses. The city’s tax code was recently ranked first in the nation for being friendly to small businesses, and many entrepreneurs are relocating from the Bay Area to take advantage of lower corporate taxes and cost of living. Additionally, a variety of investment resources are available in Austin that help incubate startup companies. In 2014, Austin’s tech companies alone received more than $1 billion in investment, and that figure is expected to continue to grow. Currently, more than 4,700 high-tech companies are operating in Austin’s metropolitan area.

While Austin has long been regarded as a promising business environment, Detroit is a more surprising example of recent startup success. Muddled by bankruptcy and an auto industry that often seems entrenched in its nearly century-old habits, Detroit has emerged newly poised for reinvention. In 2012, the city instigated a simpler, more competitive corporate income tax. With an average leasing rate at just a third of San Francisco’s rate, office space is more affordable. Plus, a state-sponsored funding arm dedicates $25 million annually to technology accelerators, incubators, venture funding and grants. Lower costs and business-friendly policies have attracted new growth: in 2014 alone, almost 250 new technology companies were started in Michigan, with private investment totaling $770 million.

As Austin and Detroit demonstrate, new businesses need not suffocate in an atmosphere of tight lending. Policy-incentivized investments and entrepreneur-friendly tax code adjustments can measurably help startups incubate. In a country where the entrepreneurial spirit is an integral part of both the national identity and the economy, policymakers have a chance to rekindle the American Dream by increasing incentives for innovation and by decreasing barriers to entrepreneurship.

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This page was last modified on Mon May 23 16:19:03 MDT 2016