In the typical economic recovery, small businesses are at the forefront of renewed hiring. But the current recovery has not been typical, and the latest data signal increasing headwinds.
In a report released midweek, the National Federation of Independent Business said that for the third month in a row, several key economic indicators slid in May. The reading is based on a random-sample survey of NFIB’s membership.
Hiring at these small firms essentially was flat over the past three months. But more troubling is the employment outlook: On a seasonally adjusted basis, more survey respondents expect to reduce their staffs than plan to add jobs. This is the worst hiring outlook among NFIB members since last fall.
Since the recovery began, businesses have eased up on layoffs. Yet the unemployment rate has remained stubbornly high. A new surge of layoffs among small firms would make reducing the jobless rate even more difficult.
The NFIB report also points to why small firms are not hiring-or are opting to reduce their payrolls. When asked to name the biggest problem they face, a plurality of some 25 percent cited "weak sales." Only 3 percent blamed lack of financing.
In other words, this is a demand-side problem, not an inability to finance growth. This runs counter to the view of many economists that the small-business sector’s woes stem from difficulty in obtaining credit.
A report from the Small Business Administration in February showed that the total value of outstanding loans to small companies fell by $59 billion, or more than 8 percent, in the two years that ended in June 2010. Most of that drop occurred after June 2009, when the recovery officially started.
No doubt some small businesses are finding it hard to get credit, but many firms clearly are more interested in shedding debt than adding more.
The NFIB criticizes the Obama administration for "misdirected policies" that aim to spur hiring while demand is weak because consumers are still working off their own debt. "(The administration) does not want to acknowledge that some problems cannot be resolved quickly. This requires patience."
It’s not possible, of course, to mandate or legislate patience. But it might be just what’s needed.
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