Small businesses continue to add jobs; optimism rebounded in the fourth quarter.
Feb. 9, 2006--While the economy shifted into a slower gear in recent months, resilient small firms have kept hiring new employees and restocking their shelves. Here's a look at this week's economic developments and how they may impact your business.
Jobs and Spending Up
Small companies nationwide were largely unfazed by a slowdown in economic growth at the end of last year, the Small Business Administration's Office of Advocacy reported Tuesday.
The quarterly report, based on a basket of both government and private-sector surveys, showed that despite a drop in real gross domestic product in the fourth quarter of 2005 -- to just 1.1% from 4.1% in the previous quarter -- industries with the largest percentage of small-business employment added 142,200 new jobs during the three months ending Dec. 31. These included jobs in the construction, wholesale trade, and the leisure and hospitality sectors, among others.
At the same time, rising interest rates didn't keep small business owners from borrowing, the report showed. Though the average prime rate for the year was almost two percentage points higher than in 2004, demand for commercial and industrial loans rose by roughly the same amount, according to a survey of senior loan officers cited in the report. The overall number of deals and investment in venture capital were unchanged in 2005, the report said.
The report also highlighted a steady rise in small-business optimism, which rebounded in the fourth quarter after being dragged down by Hurricanes Katrina and Rita.
An unrelated report by Visa USA on Wednesday showed small-business spending grew by 5.4% in 2005 to $4.7 trillion -- accounting for a full 29% of total commercial spending in the U.S last year. Just over half went into raw materials, manufactured goods, professional services, rent, and supply services, among other expenses, the report said.
Visa estimates that small-business spending will ease up in 2006, to 4.3%, hitting $4.9 trillion by year's end.
More Sales, More Inventories
Sales of merchant wholesalers rose an unexpected 1% to $314.9 billion in December, with inventories of nondurable goods hitting a five-year high, the Commerce Department reported Thursday.
The gains in wholesale sales follow a 0.7% decline in November -- the biggest drop since April 2003 -- and were a robust 8.3% higher than December 2004. Sales of furniture, professional equipment, apparel, and petroleum all increased by more than 2% in December, while sales of farm products and alcohol were down, the report showed.
Over the same period, inventories of drugs, groceries, paper, and other nondurable goods rose by 1.6% -- enough to keep shelves stocked with both durable and nondurable goods for 1.15 months at the current sales pace, the department said.
Jobless Claims Keep Falling
The number of workers making new unemployment benefits claims rose by just 4,000 to 277,000 in the week ended Feb. 4, the Labor Department said Thursday. As a result, the so-called four-week moving average of initial claims, which evens out week-to-week swings, dropped by 7,750 to a six-year low of 276,500, the report showed.