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
In the fourth quarter of 2008, the U.S. economy suffered its worst decline since 1982; real GDP fell by an annualized 3.8 percent. Real exports, which had been a bright spot in previous quarters, declined nearly 20 percent (annualized) as the global recession weakened demand for U.S. products. Real imports fell 15.7 percent. Individual and business spending fell too. In annualized terms, real consumption declined 3.5 percent and real gross private fixed investment fell 12.3 percent. Echoing weakened demand, manufacturing output fell to historic lows: the manufacturers’ purchasing index sank to its lowest point since 1980, and industrial production declined by an annualized 6 percent.
The United States lost 2.97 million jobs in 2008, more than half of them in the fourth quarter. Unemployment rose to 7.2 percent in December. Only education and health services experienced job gains in the quarter. The sectors hit hardest were trade, transportation and utilities; manufacturing; construction; and professional and business services. Small businesses make up a significant share of these. With fewer workers, labor productivity increased at an annualized 3.2 percent. Unincorporated self-employment declined by 500,000 to 9.6 million; incorporated self-employment was unchanged at 5.8 million.
According to the National Federation of Independent Business’s monthly survey, small business owners’ top concern was poor sales. Respondents indicated that the next three months were not a good time to hire and that they may even be likely to lay off workers. Overall, consumers and small businesses were very pessimistic in their economic outlook.
In light of the banking sector’s weakness, the Federal Reserve and the U.S. Treasury took aggressive actions, including October’s Emergency Stabilization Act and the Troubled Asset Relief Program. In addition, the Federal Reserve cut its target federal funds rate to essentially zero. The yields on three-month Treasury bills fell to 0.03 percent in December, reflecting this significant relaxation of monetary policy. Overall, the prime rate was five percentage points lower than in September 2007. Banking standards were much tighter, small business loan demand remained weak, and there were fewer venture capital deals.
The effects of inflation earlier in the year were reversed, with the consumer price index falling at an annualized 12.7 percent to return to its 2007 level. Much of this deflation was the result of dramatic declines in oil prices, which fell from $145 per barrel in July to $41 in December. Reduced demand was also a factor. Only 550,000 new homes (on an annual basis) were constructed in December, one-quarter of the level of housing starts in 2005.
The Complete Report (pdf)
Information courtesy of the Small Business Administration.
