No Rebound Yet For Smallest Businesses
Posted by: John Tozzi on November 30, 2009
Confidence among America’s smallest business owners fell to the lowest level since February, according to the latest Discover-Small Business Watch. The survey, conducted by Rasmussen Reports, polls a random sample of 750 business owners with five or fewer employees on six core questions each month. Together businesses of this size make up 22 million of the nation’s roughly 26.6 million firms.
The survey asks small business owners questions about how they feel about the economy, and questions specific to their businesses, like whether they plan to hire or lay off workers. I picked out three business-specific questions and charted them below. (View the full-size image here.)
Here are the precise questions:
Over the next six months, will your company increase or decrease spending on business development activities such as advertising, inventories, and capital expenditures? (The blue line indicates percentage planning to decrease business spending.)
Over the past 90 days, has your business encountered any temporary cash flow issues that caused you to hold off on paying some bills? (The red line indicates percentage that responded yes.)
Over the course of the next few months, will your company be hiring more workers, laying off workers, or making no change in the workforce? (Green line indicates percentage planning to lay off workers.)
The percentage of companies citing cash flow problems and the percentage cutting business spending are moving in tandem, and both are now above the 50% mark. That’s not a good indicator for recovery. Likewise, the 15% planning to make layoffs is double the number planning to hire.
Note also that (like most small business research) this doesn’t factor in survivor bias: the firms that have already closed doors in this recession are not around to be surveyed.
The Discover-Small Business Watch offers more evidence that the small business economy is lagging behind Wall Street and the Fortune 500. It’s evident in credit conditions (firms that borrow in the capital markets largely have credit restored, while firms that borrow from banks don’t). The gap may be understating the employment situation (because smaller firms and self-employed people are not counted as quickly as larger firms) and overstating GDP growth (ditto).
This survey taps into those smallest employers and self-employed business owners who aren’t well-represented right away in official economic statistics. The spending and hiring decisions of 22 million microbusiness owners affect the broader economy. According to this survey, there’s no recovery for them yet.