Small Businesses Showing Signs of Strain | Small Business

With the ailing economy, small businesses are hurting, and that should worry all Americans.

According to the National Federation of Independent Businesses (NFIB), the nation?s top small business association, small businesses in July showed no sign of expansion as measured in hiring. That trend was repeated from June.

In a press release on August 4, NFIB Chief Economist William C. Dunkelberg described the bleak situation faced by America?s small business owners.

?For the small-business community, the employment picture remained bleak throughout July,? said Dunkelberg. ?With major hiring trends basically unchanged from June, current conditions contradict the idiom that ?no news is good news.? Good news is not what we have to report.?

Dunkelberg went on to note that more small business owners reduced employment than added employment. ???Last month, 12 percent (seasonally adjusted) of the owners added jobs, but 14 percent reduced employment, leaving us with a net negative 2 percent of firms adding jobs in July,? the NFIB economist said. ?The remaining 74 percent of owners made no net change in employment, suggesting that the majority of firms are holding steady, but not planning to grow any time soon. While an improvement from June ? when a net negative 7 percent of firms added new jobs ? job creation still remains solidly negative. Twelve percent (seasonally adjusted) reported unfilled job openings, a disappointing 3 point decline from June."

The bad news for small businesses is a counterpoint to the latest overall jobs data that showed modest growth in July. Overall, employers added 117,000 jobs last month, driving the unemployment rate down to 9.1 percent. But that was only a minor drop from 9.2 percent a month earlier. Moreover, it is not enough to offset new workers entering the job market.

The number of new jobs created, reported the Los Angeles Times, was ?still below the number needed just to keep pace with people newly entering the job market. The unemployment rate dipped from 9.2% to 9.1%, but much of that improvement was because people had become discouraged and had dropped out of the jobs market.? In its coverage of the news, Forbes called the jobs report ?a pig in lipstick.?

Like a proverbial canary in a coal mine, the NFIB report that small businesses are not hiring is likely an indicator of the real state of the economy.

While big business gets the majority of headline coverage, it is actually small businesses that make up the heart of the U.S. Economy. The Small Business Administration (SBA) points out that small businesses ?represent 99.7 percent of all employer firms? and ?employ just over half of all private sector employees.?

In addition, economic growth is historically tied to small business. SBA points out that small businesses ?have generated 64 percent of net new jobs over the past 15 years.?

Further, small businesses:

• Create more than half of the nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 30.2 percent of known export value in FY 2007.
• Produce 13 times more patents per employee that large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.

As a result of the substantial influence of small businesses on the economy as a whole, the way small business go can effect the future of the overall economy.

According to the NFIB?s Dunkelberg, the immediate future for small businesses provides little reason for optimism.???Small-business plans to hire showed a tiny burst of optimism in June, but it appears short-lived as July numbers were on the wane,? Dunkelberg said. ?Over the next three months, only 10 percent plan to increase employment (down 1 point), and 11 percent plan to reduce their workforce (up 4 points), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, down 1 point from June.?

The poor outlook is directly related to low performing segments of the economy, including services and housing, that small businesses often serve.

According to Dunkelberg, ?The poor recovery in the jobs numbers is a result of very low housing starts activity and lagging expenditures on ?services?, both labor intensive industries dominated by small firms. Housing starts show little hope for much job creation in construction in the near future and the most recent reports on consumer spending show continued weakness, with retail sales falling. Without sales, there is little reason to expand.?

Moreover, Dunkelberg avers, anti-business policies and regulation emanating from the federal bureaucracy are also exerting downward pressure.

Warned Dunkelberg: ?[W]ith Washington politics being as they are, there is plenty of reason to remain uncertain.?

Source: http://www.americandailyherald.com/20110806696/small-business/small-businesses-showing-signs-of-strain

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