Is the Economic Recovery Trickling Down to Small Businesses?

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The Great Recession technically ended in summer 2009, as the economy rebounded and started to expand. Since the trough of the financial meltdown, unemployment and consumer confidence levels have improved. However, small business optimism indicates the recovery is still sluggish at best.

The National Federation of Independent Business, the leading nonprofit small business association representing small and independent businesses, reported that its Small Business Optimism Index edged slightly higher, to 94.3, at the beginning of the year, compared to 94.1 in December. At the beginning of 2013, the index posted a reading of only 88.9. The pre-recession average of the index is 100.

“Employment starts 2014 over a million below its peak in January 2008 and prospects for a major recovery in jobs are not good,” said NFIB chief economist Bill Dunkelberg. “NFIB labor market indicators have recently seen a return to normal (but not expansion) levels, encouraging in that reversals are now less likely. The average increase in workers per firm has also risen in recent quarters, indicating new job creation. However, there are far fewer firms hiring workers than there were in 2007 and many of those still in existence have downsized.”

Adding to the weak sentiment, only three of the 10 index components were positive, while five were negative. Small businesses expecting the economy to improve and overall credit conditions were unchanged. Plans to increase employment increased 4 points to 12 percent, and businesses expecting higher sales jumped 7 points to 15 percent — the strongest job creation plans in more than six years.

Small businesses are still most concerned with taxes and government regulation, with both showing gains from a year earlier. In fact, 24 percent of businesses say taxes are their top problem, while 22 percent say government regulation and red tape are the main problem. Fourteen percent are most concerned about sales.

“Last year finished with a fair uptick in economic activity, but probably not as strong as the ‘headline’ GDP numbers made it look,” said Dunkelberg. “Overall, GDP was up only 1.9 percent in 2013, down from 2.8 percent in 2012. But the second half of the year posted above trend growth numbers, a rare showing in our 5 year recovery. Exports were strong, that’s good for manufacturing output, but less so for jobs — productivity looking good.

“A huge share of the growth was in inventory building, nice while it is happening, but usually followed by sub-normal production later as excess stocks are worked off. That will depress activity in the first half of 2014 and keep some prices down.”

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