The Small Business Economy Falls Apart

Small businesses are supposed to be a major engine of the US economy. Some experts believe that companies with under 500 workers use more than half the people who work in the US and are a larger portion of job creation.

The economic slowdown has hit these small businesses with a vengeance and this may be a cause of slow GDP growth in the second half.

The NFIB Research Foundation Index of Small Business Optimism showed concerns about the economy rose in May. It is still very sharply below peaks in 2004 and 2005.

The firms survey expect the job market to weaken and that unemployment will stay high this year. Eight percent plan to cut jobs. Thirteen percent of these firms plan to add workers; that is off 3% from the April number.“Corporate profits may be at a record high, but businesses on Main Street are still scraping by,” said NFIB chief economist Bill Dunkelberg.

The federal government has yet to put together any program or group of programs to address economic troubles at small businesses. Most have little access to capital at the same time that America’s largest firms can borrow at historically low rates. Small companies often have balance sheets with low cash and assets. Banks have had enough trouble with business loan defaults over the last four years.

The SBA, which is supposed to be the federal government’s outreach program to small businesses, has not helped the sector–at least based on results.

Washington has dozens of things it must do to help the economy and bring down the deficit. Negotiations between to two political parties are so rancorous that many of these issues may not be settled at all. Small business troubles do poorly in importance when compared to deficit and national debt problems. Their financial woes may be unaddressed and negative trends in their earnings and ability to add workers may abide.

The faltering of the country’s smallest businesses will probably not end soon. The economy has begun to move against them. One the list of trouble at the federal level, they are much closer to the end of the line than the beginning–another hole in the attempt to right GDP growth.

Douglas A. McIntyre