The Quarterly Indicators report provides recent monthly and quarterly data from a wide variety of sources relevant to small businesses. Economic activity of small firms is examined at the national level.
Trends
Real output grew at an annual rate of 3.5 percent in the fourth quarter of 2006, an increase over the previous two quarters. The economy grew as a result of higher real personal consumption and increased net exports. Real gross private fixed investment fell, a casualty of continued weakness in the housing sector. For the year, real gross domestic product grew 3.4 percent. Industrial production rose during the quarter and the year as a whole.
Consumer and business optimism indicators were mixed. The University of Michigan's Consumer Sentiment Survey showed increased consumer optimism for the quarter, but the National Federation of Independent Business's Optimism Index fell, ending the year at 96.5. This reading, if confirmed in future months, could indicate slower growth in the small business sector in 2007. The NFIB survey also showed a drop in the number of small businesses willing to expand or hire in the next three months compared with the previous quarter.
The unemployment rate in December 2006 was 4.5 percent. Non-farm payroll increased by 511,000 in the fourth quarter and 2.2 million for the entire year. Employment rose in every major sector except construction and manufacturing during the quarter; employment grew in every sector except manufacturing and retail trade during the year. Three sectors with significant proportions of small firms - professional and business services, health and education services, and leisure and hospitality - accounted for nearly 1.5 million of the net new jobs in 2006. Incorporated and unincorporated self-employment increased for the year.
Interest rates began to level off after several quarters of upward creep. Rates for the smallest loans fell 0.1 percent for the quarter, but were up approximately 1 percent for the year. Higher rates have begun to affect the demand for small business loans; more senior bank officers suggested a weaker demand than a stronger one. (The vast majority, however, observed no change in demand.) Meanwhile, there were $25.5 billion in venture capital deals in 2006 - the highest volume since the dot-com collapse. For the last five months of 2006, short-term Treasury bill rates were higher than longer-term Treasury notes. This phenomenon, the so-called "inverted yield curve," has sparked considerable debate among economists; at a minimum, it indicates that the market is predicting lower interest rates in the long term.
Inflation remained under control. In 2006, the consumer and producer price indexes increased 2.6 and 1.8 percent, respectively. In the fourth quarter, consumer prices barely rose - up just 0.2 percent on an annualized basis - and were helped by lower energy costs. The price of West Texas crude was below $60 a barrel for much of the fourth quarter. Private sector wages, salaries, and benefits increased 3.1 percent year-to-year, but in the fourth quarter of 2006, benefit gains outstripped wages and salaries.
The Complete Report (pdf)
Information courtesy of the Small Business Administration.
