WASHINGTON, D.C. - Economic conditions for small businesses moderated in the first quarter of 2005, according to the Office of Advocacy’s newly released Quarterly Indicators: The Economy And Small Business. The report shows real gross domestic product (GDP) growth of 3.1 percent in the quarter and unemployment falling to 5.2 percent.

“The economy cooled in the first quarter of 2005 as higher energy costs weighed on the public’s mind,” said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. “While real GDP grew at 3.1 percent, that is slower than the previous quarter. Small business owners remained optimistic, although at lower levels than in 2004.”

During the quarter, interest rates continued to increase as policymakers tried to dampen inflationary pressures. The average prime lending rate rose to 5.4 percent, while the 2004 average was 4.3 percent. Nonetheless, the Senior Loan Officers Survey showed the demand for small business commercial and industrial loans remained strong.

Energy prices played a key role in the first quarter of 2005. The average price of West Texas crude reached $54.31 a barrel in March 2005 - almost $11 more than the December 2004 average.

This increase affected consumer prices, so that between December 2004 and March 2005 they rose at an annualized 4.25 percent rate, with 1.37 percentage points of the rise attributable to energy costs. Producer prices followed a similar pattern.

The Office of Advocacy, the “small business watchdog” of the government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues.