Courtesy of Michael Panzner at Financial Armageddon
In yesterday’s post, "Shaking My Head in Disbelief," I questioned why so many people were still talking about "the recession" when it supposedly ended almost a year-and-a-half ago. Of course, I was being facetious — anybody who’s been paying attention knows that the idea the U.S. is recovering is just that — an idea, conjured up in the minds of giddy Wall Street traders and ivory tower economists. Perhaps no segment of the economy is more aware of the true state of affairs than the small business sector, which has been a traditional locomotive for growth in the U.S.. As the following reports make clear, small business is seeing little evidence of a light at the end of the tunnel:
"Small Business: Still Waiting for Recovery" (BusinessWeek)
While export-driven profits increase for multinationals, most small businesses in the U.S. are left behind. Their sales are still declining—and that’s a drag on hiring
The recovery that began in the middle of last year hasn’t reached small businesses yet. While corporate profits approach pre-recession levels, income at small private companies is recovering much more slowly, according to data from the Bureau of Economic Analysis. Proprietors’ income—the profits of unincorporated businesses such as partnerships or individuals who work for themselves—is down nearly 5 percent from two years ago, while corporate profits have jumped 21 percent in that period, the BEA reports.
The uneven recovery of small companies stems partly from the diverging fortunes of the U.S. and faster-growing countries. Many big corporations are seeing strong sales from their overseas operations while smaller companies tend to sell primarily to customers in the U.S., says Drew White, chief financial officer at accounting software company Sageworks, which collects and analyzes financial data from hundreds of thousands of private companies. "Small businesses are probably going to get revenue later in the business cycle than the big businesses that are exporting to growing markets internationally," White says. "[Large companies] have the ability to shift markets if they see demand."
"Big Companies Hiring, Small Companies Aren’t, Gallup Finds" (Economix)
Despite the usual trope that “small businesses are the engines of job growth,” larger companies actually seem to be doing the most hiring these days, according to new Gallup survey data.
In a recent poll asking Americans whether their companies were hiring, reducing their work forces or staying the same size, people at the largest companies were most likely to say their staffs were growing.
Just 9 percent of people who worked at companies with fewer than 10 employees said their companies were hiring, compared to 42 percent of people who worked at companies with at least 1,000 employees.
"Few Businesses Sprout, With Even Fewer Jobs" (Wall Street Journal)
Fewer new businesses are getting off the ground in the U.S., available data suggest, a development that could cloud the prospects for job growth and innovation.
In the early months of the economic recovery, start-ups of job-creating companies have failed to keep pace with closings, and even those concerns that do get launched are hiring less than in the past. The number of companies with at least one employee fell by 100,000, or 2%, in the year that ended March 31, the Labor Department reported Thursday.
That was the second worst performance in 18 years, the worst being the 3.4% drop in the previous year.
Newly opened companies created a seasonally adjusted total of 2.6 million jobs in the three quarters ended in March, 15% less than in the first three quarters of the last recovery, when investors and entrepreneurs were still digging their way out of the Internet bust.
Research shows that new businesses are the most important source of jobs and a key driver of the innovation and productivity gains that raise long-term living standards. Without them there would be no net job growth at all, say economists John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau.
"Why America Isn’t Lending to Small Businesses" (Reuters’ Entrepreneurial blog)
The “Great Recession” – the longest since World War Two – will have an even more prolonged effect on the economy if one trend continues: small businesses are unable to secure capital.
Despite significant government stimulus to banks and lending institutions, small business lending is actually down over the past few years. So why isn’t the banking industry lending to small businesses during a period in our history when it’s absolutely essential? The answer has a lot to do with credit-worthiness.
Banks claim it’s hard to find qualified applicants and, for the most part, they believe the majority of small businesses simply aren’t credit-worthy. And in this economy, banks are not willing to take a risk. As a result, business lending suffers.
The latest statistics from the Federal Reserve Bank of New York show more than 75 percent of small businesses that applied for a loan during the first half of 2010 did not receive the credit they needed.
"It’s Not a Recovery for Small Business" (Small Business Trends)
Although the overall economy has been in recovery for more than 16 months, the small business sector hasn’t been included. Since the recession ended in the summer of 2009, measures of the health of small business have either stagnated or weakened.
Consider first what small business owners think about the effect of the economy on their businesses. In July 2009, 29 percent of respondents to the Discover Card Small Business Watch said their business’s economic situation was improving. In October 2010, the figure was 28 percent.
Similar numbers can be seen from the twice-a-year American Express Open Survey of small business owners. In September 2010, 17 percent of those surveyed said that their business risked going under because of the economic climate, up from 11 percent in March 2009, shortly before the recovery began.
It’s not just small business owners’ perceptions that are more negative now than when the recovery began. The government’s numbers show the same pattern. Bureau of Labor Statistics (BLS) figures show that the number of people self-employed outside of agriculture has not come back since the recovery began. A seasonally adjusted 50,000 fewer people were self-employed in September 2010 than in the first month of the recovery.
Business start-up rates among those out of work continue to decline. According to a survey by outplacement firm Challenger, Grey and Christmas, only 3.9 percent of job seekers started businesses in the second quarter of 2010, a much lower percentage than in the first quarter of the recovery, when 11.8 percent sought to found companies.
"Editorial: Small Businesses Need More Access to Credit" (Knoxville News Sentinel)
Small businesses breathe jobs into the economy, but tight credit is strangling them even as the nation slowly recovers from the worst economic downturn since the Great Depression.
Banks and other lenders remain tight-fisted, frustrating many small business owners who are ready to expand. Without access to credit, business owners can’t invest in new equipment or new workers. Seasonal businesses that rely on credit to smooth out dips in cash flow are finding themselves vulnerable, even though they’re profitable on a yearly basis.
Lenders are wary, however, because bad loans – bad mortgages bundled into securities, to be exact – triggered the recession. Regulators are keeping a close eye on their balance sheets.
Originally published at Financial Armageddon, Little Evidence of a Light at the End of the Tunnel.
