Economy

The Limits of What We Know About the Small Business Economy


One question: How small is a small business?

Photograph by Luke Sharrett/Bloomberg

One question: How small is a small business?

How are U.S. small businesses doing? A handful of indicators try to answer this question each month, including a widely watched survey from the National Federation of Independent Business that showed on Tuesday that Main Street’s outlook cooled in February.

Here’s what you don’t hear each time numbers such as this come out: They give us a surprisingly limited view into the small business sector. “You should take what comes from the NFIB with a little bit of salt,” said Traci Mach, a senior economist at the Federal Reserve, at a conference on small business lending in Washington last week.

That’s because the NFIB’s membership doesn’t represent all U.S. small businesses and because the survey has low response rates. (About 20 percent of members selected for this month’s survey submitted usable responses, according to the NFIB.) The result is that the survey tracks the opinions of “people who want to be heard, who have a message they want to send out,” Mach said.

The Fed economist also pointed out issues with data from the PayNet Small Business Lending Index. One of the mandates of the Consumer Financial Protection Bureau is to collect better data on small business lending. Until then, Mach says, economists will have to “take lemons and make lemonade.”

Mach was talking specifically about data on small business lending conditions, but her point applies more broadly to efforts to chart the strength of the small business economy, which makes up nearly half (PDF) of the private sector economy. As we habitually point out, efforts to gauge Main Street hiring depend on what organization is counting—and how it defines “small.”

Still, for those interested in making lemonade, here’s a rundown on some of this month’s data:

Companies with fewer than 50 employees added 59,000 jobs in February, according to payroll company ADP (ADP), down from 94,000 in February 2013.

Sure Payroll’s (PAYX) Small Business Scorecard showed a slight decrease in small business hiring in February, with 34 percent of respondents reporting slower sales due to harsh weather.

The majority of companies surveyed for the CBIZ (CBZ) Small Business Employment Index reported no change in staffing from the previous month.

The hiring portion of the NFIB’s monthly survey showed a slight increase in Main Street employment.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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Companies Mentioned

  • ADP
    (Automatic Data Processing Inc)
    • $84.14 USD
    • 0.03
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  • PAYX
    (Paychex Inc)
    • $47.32 USD
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