Small business economic conditions were strong and steady in the second quarter of 2005, according to the latest report issued by the Office of Advocacy of the SBA.
"The economy stayed strong and steady in the second quarter of 2005 as real growth continued at over three percent," said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. "Industrial production and proprietors' income both continued to grow and small business optimism remained high."
In the second quarter interest rates continued to increase, reflecting the Federal Reserve's efforts to stabilize the growing economy. Nonetheless, the Senior Loan Officers Survey showed the demand for small business commercial and industrial loans remained strong, while at the same time venture investment deals grew, reaching $5.8 billion.
The one cloud that is looming over what is now over two years of economic expansion is the price of oil. West Texas crude (a benchmark for oil) was at $56.26 a barrel in June, an increase of nearly $2 from March, and is now hovering around $65.
However, despite high energy costs, consumer and producer prices rose only modestly in the second quarter. There are also indications that prices may have peaked, at least for the time being.
But let's put this all in perspective. When adjusted for inflation, the price we pay for gasoline has been relatively stable over the past 100 years. In fact, there have been several periods in the last century when gasoline was priced relatively higher than it is today.
We should also keep in mind that much of the price we pay at the gasoline pump is actually made up of taxes. Politicians think nothing of adding on an additional tax to pay for a new project. Does that tax go away when the project is done? Of course not. Some taxes are indexed to gas prices, so the current increase at the pump is actually creating quite a windfall of tax revenues in some states.
An interesting outcome of the high price of gasoline is that voters in many states (for example, Washington, New Jersey, Oklahoma, and West Virginia to name a few) are now beginning to pay more attention to these taxes. If an outcome of the higher price of gasoline this summer is a series of mini-tax revolts, I guess there will be at least one positive outcome from all of this.
While the recent spike in fuel costs is causing some concern about its potential impact on growth, there is no evidence that this is happening. The entrepreneurial economy continues to roll along.
