U.S. Economic Round-Up

May 7, 2008

April not only marks the beginning of spring but it may also mark the beginning of a spring-back for the U.S. Economy. The latest economic gauges indicate encouraging signs that the economic slowdown may not be as pronounced as some had feared. Still, there is much caution--about housing, credit and other problems-–being voiced by prominent figures in the nation’s capital.

While employment in the U.S. took a hit for the fourth consecutive month, many analysts welcomed the latest news coming out of the April report released by the Labor Department. The 20,000 jobs lost in April was not as bad the losses of the previous two months nor was it close to the anticipated loss of 75,000 – 85,000 jobs many had predicted. Adding to the optimism of many economic trend-spotters was the tenth of a point drop in the April unemployment rate bringing the rate down to an even 5 percent.

The hardest hit sectors of the U.S. economy were the usual suspects - construction and manufacturing. Jobs within the construction and manufacturing private-sector fell by 110,000. That loss was partially made up in the service sector, which added 90,000 and has continued to grow over the past four months.

With unemployment rates remaining increasingly high more and more people are looking to entrepreneurship as a meaningful way to make a living. According to the March 2008 ADP Employment Report, small business with fewer than 50 workers added 55,000 jobs to the U.S. economy in March alone, a large number of which are likely new firms.

Even in a growing economy, many small businesses face significant challenges in getting a traditional bank loan. In an economic slump, it is even harder. According to the April 2008 Federal Reserve Survey of Bank Lending Practices, 55 percent of domestic banks have tightened standards on commercial and industrial loans to businesses. Banks also reported that they are raising the cost of credit lines and premiums charged for higher-risk loans. Seventy percent of domestic banks required higher debt service coverage ratios and lower loan-to-value ratios on commercial real estate loans. These tightened standards continue to impact small-business lending, with small business demand for loans down 25 percent from the January 2008 report.

As America’s small businesses struggle to weather the credit-crunch storm, Sen. John Kerry (D-Mass.), Chair of the Senate Committee on Small Business and Entrepreneurship, introduced legislation in February aimed at throwing them a lifeline. The bill (S. 2612) would provide $150 million to cut U.S. Small Business Administration fees on government-backed 7(a) small-business loans.

According to Kerry, the bill would reduce borrower fees to stimulate small businesses’ demand for loans, and it would also cap lenders’ fees to stimulate bank participation in the SBA loan program.

NSBA supports (S. 2612) and applauds Kerry’s effort to reduce the costs of SBA loans and assist entrepreneurs in accessing the capital they need to start and grow their small businesses. Historically, small business has been the catalyst that gets the economy back on the right track during slow times. Improved lending practices can only help.