Real Employment Recovery Seems Impossible as Small Business Conditions Deteriorate

by: David Goldman

Startups create most new jobs in America. With small business conditions deteriorating, it is hard to envision any real recovery in employment. The latest survey data for American small business are grim. The two main indices, from the National Federation of Independent Business and Discover Small Business Watch, fell in February, the latter (which focuses on the smallest businesses) by a huge margin - 9.2 points between February and March to 75.7.

Discover reported:

  • The March results were marked by a surge in the number of small business owners who say economic conditions for their own businesses are deteriorating: 53 percent of them say the climate will get worse in the next six months, compared to only 37 percent who answered that way in February. Of the remaining respondents, 20 percent said things are getting better, 20 percent said things are the same, and 6 percent are unsure.
  • When asked about their intentions to invest in their businesses, 52 percent said they would decrease spending, up from 43 percent in February, while 27 percent said they would make no changes, and 18 percent said they plan to increase spending.
  • Little faith was expressed for the direction of the larger economy, as 58 percent said it is getting worse, up from 44 percent in February; while 22 percent think it is getting better, down from 31 percent the prior month; and 16 percent said it’s staying the same, versus 24 percent last month.
  • Views on the current economy were relatively unchanged over February: 59 percent rated the economy poor, 31 percent called it fair, 6 percent said good, and 1 percent chose excellent.
  • Cash flow issues remained largely unchanged: 46 percent said their businesses encountered temporary cash flow issues in the past 90 days that caused them to hold off on paying some bills, 47 percent did not have issues, and 7 percent weren’t sure.
Meanwhile the NFIB’s business optimism index fell to 86.8 in March from 88 in February. Bloomberg quoted an NFIB economist as follows:

“Usually we see the small businesses leading the way out since they’re the first ones to see the consumer come back, but what’s happened this time is the consumer didn’t come back,” William Dunkelberg, the group’s chief economist, said today in a Bloomberg Radio interview. While purchases have increased, “there’s not enough sales to go around to make the whole population of small businesses very healthy,” he said.

The measure of earnings expectations showed the biggest decline in March, falling 4 points to minus 43 percent. Thirty- four percent of respondents cited “poor sales” as the top business concern, the same as in February, and the net percent of owners projecting higher sales, adjusting for inflation, fell to minus 3 percent. ...

How do we square this with what appears to be a big improvement in employment, according to the Household Survey for March? For March, the household survey has a seasonally-adjusted total employment number of 138,905 and an unadjusted unemployment number of 137, 983. Unemployed after seasonal adjustment are 15.008 million vs. 15,678 million before seasonal adjustment. There is something squirrelly in seasonally-adjusting data in the midst of tectonic shifts in the structure of the economy.