Dear Mr. President:
A Report of the President, 2005


The Office of Advocacy of the U.S. Small Business Administration
is pleased to present The Small Business Economy: A Report to the
President. In 2004, the overall economic indicators improved as
the recovery gained momentum, and small businesses led the way.
Continued strong growth requires an environment that fosters
ongoing small business activity.

Small businesses were active in the economy of 2004, which was
characterized by stable prices and healthy increases in output, productivity,
and private sector employment. Financial market conditions
favored continued growth, and small business borrowing
increased. Small businesses also continued to benefit from federal
government acquisition of goods and services in 2004.

In March 2005, Economic Development Administration Assistant
Secretary David A. Sampson talked about the importance of small
business at the Office of Advocacy’s conference on Putting it
Together: The Role of Entrepreneurship in Economic Development.
He said, “Entrepreneurs are the engines of economic vitality and job
creation because they are committed to tapping in and leveraging
the power and the opportunities that private markets provide. We
need to increase the number of entrepreneurs and spread the spirit
of innovation and enterprise all across our country—even to regions
that are less vibrant than the rest of the country.”

This year’s report focuses a spotlight on the contributions and challenges
of entrepreneurs in several demographic groups, namely
minorities and veterans. A review of literature by Robert Fairlie pulls
together the findings of a number of studies on minorities, including
African Americans, Asians, and Hispanics—their involvement in
entrepreneurship, including current trends, and the challenges that
stand in the way of even more impressive achievements.

A report on veteran business ownership draws together a wealth
of information from various studies on veteran business ownership
published by the Office of Advocacy. It also reports on the results
of a survey administered to a residential population of post-Korean
conflict veterans and to a population of veteran business owners
from all conflicts and peacetime periods.

Also featured is a report on federal and state agencies’ efforts to make
regulations less burdensome for small businesses. This year is the 25th
anniversary of the enactment of the federal Regulatory Flexibility
Act of 1980 (RFA), and over its history, the Office of Advocacy has
worked diligently to monitor federal agency compliance with the law.
The Small Business Regulatory Enforcement Fairness Act, passed in
1996, strengthened its provisions, and your Executive Order 13272 of
August 2002 was crucial in fostering an environment in which agencies
take small firms into account when drafting new federal rules.
We continue to work to ensure that small business owners have a say
in the regulatory process. In fiscal year 2004, Advocacy’s involvement
resulted in more than $17 billion in regulatory cost savings and more
than $2 billion in recurring annual savings.

Small firms also face regulatory burdens at the state level. The Office
of Advocacy’s model legislation, developed in 2002, is designed to
encourage states to adopt regulatory flexibility laws. The initiative has
received a great deal of support from governors and state legislators,
resulting in the adoption of similar legislation or executive orders that
attempt to minimize regulatory burden on small business.

As the economy continues to improve, with an active and innovative
small business sector leading the way, we will continue to focus
on issues designed to create an environment where entrepreneurship
can flourish. Your administration’s leadership and support for
America’s dynamic small business sector continues to be critical.

Thomas M. Sullivan 
Chief Counsel for Advocacy


Chad Moutray
Chief Economist