Trends
Real GDP increased 3.1 percent, somewhat less than in previous quarters. Higher energy costs had an impact. Two components of GDP explain part of the picture. Real personal consumption expenditures and real gross private fixed investment (capital spending) had annualized growth rates of 3.5 and 5.0 percent, down from 4.2 and 10.5 percent, respectively. The trade sectors continue to see brisk growth, with real exports and imports rising at annualized rates of 7.0 and 14.7 percent, respectively.
Small business owner and consumer optimism have weakened from the highs in 2004, yet the direction is still positive. The National Federation of Independent Business Optimism Index averaged 103.3 during the quarter. According to Advocacy research, this indicates a growing small business sector.
The unemployment rate fell to 5.2 percent in March 2005. The economy has added 477,000 new jobs so far in 2005, and 2.7 million new jobs since December 2003. Incorporated self-employment has grown steadily to 5.4 million, up 500,000 for the year. Each industry except for manufacturing, which lost 20,000 jobs in the quarter, has contributed to these gains. Industrial production has seen only modest gains recently. The four industries with the largest percentage of small business employment - construction, other services, wholesale trade, and leisure & hospitality - added 135,000 new jobs.
Interest rates continued to increase as policymakers tried to dampen inflationary pressures. The average prime lending rate rose to 5.4 percent in the quarter; the 2004 average was 4.3 percent. For small loans, the variable rate for short-term loans between one month and one year increased to 6.6 percent. Meanwhile, the Senior Loan Officers Survey shows that demand for small business commercial and industrial loans remains strong. Quarterly venture investments have "floated between $4.4 billion and $5.9 billion," according to the National Venture Capital Association, for the past two years.
The average price of West Texas crude reached $54.31 a barrel in March 2005 - almost $11 more than the December 2004 average. This has affected consumer inflation. Between December 2004 and March 2005, consumer prices rose an annualized 4.25 percent, with 1.37 percentage points of the rise attributable to energy costs. Producer prices followed a similar pattern.
