Small Business Still Hurting

In his speech yesterday, President Obama announced that his new jobs stimulus initiative would pay special care to small business. He even noted that small businesses have traditionally "created roughly 65 percent of all new jobs in America." The National Federation of Independent Business' December 2009 report on small business economic trends (.pdf) appears to indicate that some help can't come too soon. The small business community still feels a great deal of pain.

One of the strongest indicators for small business' status is their optimism -- or lack thereof. The report says:

The Index of Small Business Optimism lost 0.8 points, falling to 88.3 (1986=100), 7.3 points higher than the survey's second lowest reading reached in March (the lowest reading was 80.1 in 1980:2). In the 1980-82 recession period, the Index was below 90 in only one quarter and quickly surged to a record high level in early 1983. In this recession, the Index has been below 90 for six quarters, indicative of the severity of this downturn.

In other words, small business feels a lot worse now than it did in the brutal 1980-82 recession. Here's how more recent history looks in a chart:



While there's certainly been a modest rebound since earlier in the year, the climb back to prosperity appears stalled. It's got quite a ways to go.

The statistics look pretty awful everywhere else too. The labor market remains especially brutal in small business. Average employment declined for small businesses in November by 0.58 workers. That's also better than last spring, but still fails to indicate job growth.

A few other notable small business stats:

- Six-month capital spending outlays fell back down to a record low (since the NFIB began keeping track in 1979).
- The percentage reporting higher sales remains near its record low.
- Reports of positive profit trends were worse in November than October.
- A net 15 percent report it's now harder to get loans than their last attempt.

One of the more striking charts shows actual and expected sales:



Clearly, actual sales haven't met expectations over the past year. The next chart highlights sales as the single most important problem for small business. But it's interesting to note the second biggest problem:



This shows that taxes are still a major concern. As a result, the President's suggestion to take measures to reduce the tax burden on small business could really help.

The only thing close to resembling good news I could really identify came from this chart:



As you can see, inventories are quite low -- much lower than even planned. As a result, if consumer spending does increase, and demand strengthens, then small businesses might have to begin hiring again to replenish their inventories. Unfortunately, I'm not convinced a consumer spending resurgence is in the cards in the near-term.