Small Business Health: Canary in the Economic Coal Mine

We are currently experiencing record-setting economic statistics, such as an annual job loss rate that was the highest since payroll employment statistics were first compiled in 1939. The level of housing production was the lowest since housing-start statistics were first compiled in 1959. And the Federal budget (FY 2009) was the highest since the founding of the republic.

Small business has been the major (70%) employment generator in the U.S. and has the largest share of the nation's jobs. While most large firms have been able to obtain credit, the so called 'credit crunch' continues for small business, which depends heavily on bank lending and credit card lines.

The fact is that small businesses do not want this credit at the moment. According to the latest survey of small business owners (500 or less employees), the majority do not see any improvement in the economy to warrant an expansion of their capacity and workforce at this time. The report states that "[o]verall, 91 percent of the owners either reported all their credit needs met or they did not want to borrow." Their order books remain soft, while being ever more concerned about government regulations, with the latest round of expense being the recently passed Obama health scheme.

Capital spending by these businesses remains subdued with an "only if the roof leaks" or "windows get broken" attitude to freeing the purse strings. As a consequence, downstream trades and suppliers continue to suffer under belt tightening measures, to assist in a survival mode, that becomes more tenuous the longer the current economic malaise continues.

No one disputes the fact that small business is the backbone of the country's economy and is the workhorse engine of employment. Without this sector returning to productivity by way of solid order books - which means a return of the consumer and higher exports - the main engine of the economy will remain just barely ticking over, with resultant reduced tax revenues and continued high unemployment.

Disclosure: "No Position"