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While the stock market has been buoyant over the last several weeks, small businesses, the heart of U.S. job creation, remain extremely gloomy.
April's survey of the National Federation of Independent Businesses shows deep pessimism among small-business owners with the "Optimism Index" showing readings under 90 for the 18th consecutive month.
The NFIB calls this trend "unprecedented in survey history" and "not the picture of an economic expansion." The roots of this pessimism lie in slow sales, uncertain access to credit, uncertainty about the economy and the impact of increasing government regulations and spending, particularly with respect to health care and finance.
The survey is an important leading indicator for economic recovery. At the bottom of the 1982 recession, a net 47% of small businesses indicated they planned to hire more people, and soon after the economy turned sharply up. Currently, a net negative 8% of businesses plan to increase hiring, suggesting the economy is not yet out of the woods despite the run-up in the stock market.
Without a meaningful upturn in the small business jobs picture there will be no real economic recovery.
The biggest concern of small businesses is that sales continue to be slow. They cannot easily access the recovering Asian economies and must find their customers closer to home. And at home, small businesses tend to own a lot of real estate as an important portion of their assets.
When real estate falls in value, they have to worry. In effect, they are the only ones who have to genuinely mark their assets, including real estate assets, to market, because they often have little or no margin for error.
Unlike the banks, they are not too big to fail. When their assets fall in value, they lose access to credit. Small business access to credit has continued to decline sharply in spite of rosy, big-business earnings reports.
The nasty fight over health care and the threat that Congress' agenda will continue is also a major problem, the survey found. After "slow sales," the most cited concern of small businesses was "uncertainty about the economy." "This uncertainty seems to emanate from the political side, in Washington, D.C., and the states," the NFIB said.
This is yet another example of the real problem of political risk to markets. We have never before passed major legislation that both increases taxation substantially next year, while delaying the bulk of its "benefits" for at least four years. And both are continuing the fight.
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Posted By: jpdwn(380) on 4/15/2010 | 11:51 PM ET
Please, talk to Kudlow. Looking at the Big Picture (big business) he sees a V recovery. But if 70% of jobs come from small businesses, how do we reoover employment? And if employment doesn't recover, how does housing recover? And when do the unemployed consumers stop spending? And with growing protectionism, what happens to the world economy. Despite the best efforts of the Fed to stimulate growth, the headwinds look unsurmountable. Indeed, look out investors.
Posted By: Osamas Pajamas(1870) on 4/15/2010 | 11:24 PM ET
The government has a great racket. You do the work. They take your money. It's very simple. And it's time that the privately-employed taxpayers of America made things very complicated for the government --- rather than the other way around... Let's have some tea and sit down and think about this, shall we?
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