Report: Weak Tech Sector Brought Down Small Businesses
BY Matt Quinn
August 24, 2004 -- As technology goes, so goes small business, according to a new report from the Small Business Administration's Office of Advocacy. In a report submitted to the White House, the government agency painted the small business economic landscape of 2001 and 2002 as a time when firms tried to stay afloat while the economy recovered slowly from a short-lived recession.
The report blamed the slowdown in the so-called "Information Revolution" for the suffering of the economy and noted that the area predominantly affected was the labor market, based on the fact that output increased during both 2001 and 2002, largely on the back of productivity gains.
The number of employer firms and self-employed declined during the two-year period, falling 0.6 percent and 1.8 percent, respectively. Employment from employer firm closings outpaced employment from employer firm births by more than 300,000, according to the report.
The study noted that the decline in employment represented a big change in firms' priorities. At the beginning of 2001, small businesses listed a shortage of qualified workers as the biggest problem they faced, according to a report by the National Federation of Independent Business. By the end of the year, that concern had fallen to fourth.
Financing was a big factor in small business growth, or lack thereof, in 2001. The report stated that banks tightened lending standards for small businesses during the year. However, a credit crunch was avoided as demand waned throughout the year. By 2002, the number of banks reporting tougher standards leveled off, but demand for loans continued to decrease. The report explained that businesses were looking to maintain productivity increases rather than growing through financing.
MATT QUINN contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.