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The federal government increased contract dollars going to small businesses
in fi scal year 2003 from $89.4 billion to about $98 billion, including both prime contracts and subcontracts. As in the past, about two-thirds of the dollars in prime contracts over $25,000 were from the Department of Defense. Increasing shares of small business contract dollars were in the categories of supplies and equipment, and research and development. Minority-, women-, and veteran-owned businesses all increased their shares of contract dollars.
Businesses across all size categories had solid returns in 2003. Corporate profits of large and small businesses were up 18.3 percent, while sole proprietorship income rose 6.2 percent. Labor and capital costs remained in check during the year as the compensation cost index rose 4 percent, while the prime rate dropped by 11.8 percent. Productivity rose 4.5 percent in 2003, only slightly lower then the 4.8 percent increase in 2002.
Although private sector nonfarm employment fell over the 2000–2003 period, industries with fewer economies of scale and a higher share of small firm employment avoided disaster during the downturn. The two industries with the highest small fi rm shares of employment—construction and real estate—
saw employment fall in only one of the three years. The two industries with the largest shares of large fi rm employment—utilities and management of сompanies—struggled during the downturn and lost employment in all three years. Manufacturing, another industry with a large firm presence, with 58 percent of its employment in firms with 500 or more employees, accounted for much of the overall decline across the economy. Manufacturing employment fell in all three years, from 17.3 million in 2000 to 14.5 million in 2003, a 2.7 million decline. By the beginning of 2004, employment in manufacturing had begun to rise.