Small Business Economic Trends

The National Federation of Independent Business – an advocacy group for small business — has published its survey of Small Business Economic Trends 2009. It’s important to remember that small business accounts for the entirety of net jobs added to the economy in recent decades, and that small business hiring and investment trends are key indicators of the future state of the economy. In that context, the results are not cause for wild enthusiasm. Their commentary:

“Owner optimism remains stuck at recession levels. The proximate cause is very weak consumer spending, better than a year ago, but that was pretty bad. Fifteen (15) percent reported gains, while 43 percent reported weakness. With weak consumer spending, there is little need to invest in inventory (and borrow money to support inventory investment). Inventory investment plans are at historically very low levels. Similarly capital spending is on hold, with actual outlays and planned outlays at record low levels along with the demand for loans to finance the outlays. More firms still plan on reducing employment than plan on adding to their payrolls. Inventory reductions are still widespread, eight percent reported accumulation, 33 percent reported reductions. This sets the stage for new orders in future periods, but does not help much now. The construction industry, bloated during the bubble is still in shambles, there are too many houses in too many places (like Florida and California, significant parts of our economy).

“But the other major concern is the level of uncertainty being created by government, the usually source of uncertainty for the economy. The ‘turbulence’ created when Congress is in session is often debilitating, this year being one of the worst. Themes including ‘tax more,’ ‘tax the rich even more,’ ‘VAT taxes,’ higher energy costs due to Cap and Trade, mandates and taxes for health care, threats of ‘stimulus II,’ incomprehensible deficits, and a huge pool of liquidity created by the Federal Reserve Bank that threatens price stability and higher interest rates. The list goes on and on. There is not much to look forward to here and good reason to ‘keep your powder dry.’ Uncertainly is the enemy of
the real economy as well as financial markets.

“Pent up demand (cars, for example) is restarting the economy, house prices have stopped falling in many areas, the stock market is better, and this will encourage the top 20 percent of the income distribution, which accounts for half of consumption spending, to ‘pick up the pace.’ Santa Clause did deliver some nice revisions to the jobs numbers that will cheer everyone up as we watch the change in employment cross the “0 line” maybe by the end of the year (private sector jobs will finally take the lead).

“But there are still many uncertainties ahead (most in Congress) that need to be resolved and plenty of ‘income redistribution’ yet to come as we continue to clean up our financial system — all which creates major headwinds for the economy.”

For the details, see the survey report as noted above.

Published in: on January 11, 2010 at 6:22 pm  Comments (1)  

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One CommentLeave a comment

  1. Great Information…….!
    I think your article and content on your site is very good and for give me more info or knowladge. Keep the good work, thankyou.

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