October 26, 2014

Research Roundup: Where’s the Recovery?

Research Roundup: Where's the Recovery?If you stop and think about it, you might think it a bit odd that everybody is still talking about the Great Recession when the economy has been growing for a full calendar year.

Except, of course, that it certainly doesn’t feel like a recovery, does it? That are two reasons for that: job growth and consumer spending, both of which are pretty tepid.

There are plenty of people who want to sing the praises of small businesses at a time like this, because they expect small businesses to pull our collective economic chestnuts out of the fire by creating jobs.

Unfortunately, according to a newly released survey from the National Small Business Association (NSBA), for job growth you need capital, and financing still isn’t there for small businesses.

We’re talking about the NSBA’s 2010 Mid-Year Economic Report and, as the press release headline put it, the outlook is dismal. Forty-one percent of small businesses say they can’t find financing. Only 11 percent of them did any hiring over the last 12 months, compared to a net 25 percent of employers who cut jobs.

Most small business owners responding to the survey are not expecting much in the way of improvement within the next 12 months, either, in spite of the famed optimism of the American small business owner. The majority surveyed expect either a flat economy or a double-dip recession within the next year.

Dismal, indeed.

Where Is Consumer Demand?

The federal government, with its unique talent for barking up the completely wrong tree, has been jumping up and down and yelling about debt financing for small businesses.

In some ways, it reminds me of the last economic expansion, during which we borrowed our way to prosperity. Only this time, we are urging our small business owners to borrow their way to resumed job growth.

Generally speaking, small business owners have more sense than that. They don’t want to start borrowing money if the demand isn’t there, and American consumers are battered and still skittish.

As a matter of fact, according to research from the Pew Research Center, consumers have pulled way, way back, and indications are that a new “austerity” will characterize their behavior for quite some time. They are paying down debt and saving money where they can. Close to 10 percent of them have been unemployed for six months or more. And some experts say that a new consumer caution will outlast the recession.

If consumers, who are responsible for about 70 percent of gross domestic product, are going to be spending less and saving more, that means everybody will need to re-think their strategies for business survival and growth going forward.

Looking Under a Different Rock

Meanwhile, since small businesses are not hiring as much as one would like, this leaves policymakers in something of a quandary. Where, they might be wondering, will we find those new jobs we keep talking about?

Well, says the Kauffman Foundation, they will come from small businesses, but only from a certain kind of small business. Specifically, they have to be new businesses.

In a report entitled “The Importance of Startups in Job Creation and Job Destruction (PDF),” Kauffman researchers found that existing firms usually end up with net negative job growth when you factor in all the jobs they destroy as well as the ones they create. Startups, on the other hand, create about 3 million new jobs annually.

And, says Kauffman, that is where all job growth in this economy comes from.

“These findings imply that America should be thinking differently about the standard employment policy paradigm,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, in a press release.

“Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies. But the data from this report suggest that growth would be best boosted by supporting startup firms,” Litan added.

I mentioned, didn’t I, that talent they have in Washington for barking up the wrong tree?

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Dawn R. Rivers


Dawn R. Rivers Dawn R. Rivers, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the publisher of the MicroEnterprise Journal. She also publishes research at the Microbusiness Research Institute and she blogs at The MicroEnterprise Journal Blog.

7 Reactions

  1. Dawn,

    Thanks for sharing this data with the Small Business Trends community. It’s important o know what’s really going on.

    You shared that;

    “Most small business owners responding to the survey are not expecting much in the way of improvement within the next 12 months, either, in spite of the famed optimism of the American small business owner. The majority surveyed expect either a flat economy or a double-dip recession within the next year.”

    I’m right there, too. Flat.

    (Unless we can all, “be the change,” and get things cooking!)

    The Franchise King

  2. “And, says Kauffman, that is where all job growth in this economy comes from.”

    It’s only normal that way. Any new structure has a more adequate and updated perspective on the economic realities where it expands. And then there’s the benefit of motivation. Startups are motivated, businesses evolve and new jobs show up. The question is: are they able to support these jobs in the long run? It would be interesting to see a sociological study about the 2005 startups in a certain region, whichever it may be; see how do they manage to keep their employment rate up.
    Lloyd Burrell
    Publisher
    Office Desk Reviews

  3. This recovery is going to be slow. We just have to keep slugging it out and be very smart with our decisions.

  4. While of course, start-ups are an important component to the economic recovery, of at least equal importance is saving struggling businesses from failure. Many business owners end up closing their doors because they are unaware of a number of strategies that have been proven to help a majority of businesses turn themselves around. One of those very effective strategies is reducing the company’s accounts payable. This helps improve cash flow, reduce debt and improve the company’s ratios so that it can successfully find a buyer, an investor or a lender.

    I have written an e-book telling business owners exactly how to do this for themselves. It is free and available for download at Reduce My Payables. If you are struggling, you owe it to yourself, your employees, your customers and your vendors to make sure you have all the information and tools at your disposal to save your company.

  5. @Joel

    Do you know, I think the biggest challenge we face is that our economy is changing and we are struggling to keep that change from being too disruptive? Non-disruptive change is a bit of an oxymoron, though; the only thing our struggles do is to make this painful downturn take longer to end, IMHO. And the attempts of policy makers to prop up the remnants of the 20th century economy are likely to get in the way of *us* “being the change.”

    Knowing us, we may do it anyway but it’ll be a lot harder.

    @Lloyd

    The business dynamic data from the Bureau of Labor Statistics is interesting stuff. It shows, in general, that in any given calendar quarter, the most churn is in the largest employers and the smallest ones. Microbusiness employers (between 1 and 4 employees) are usually responsible for about 18-20% of job growth and roughly the same amount of job loss in most quarters during an economic expansion. On net, what you usually see is job growth that can be up to as much as 10%. The larger firm size classes of small businesses are much more stable and have much less dynamism in their job growth/loss numbers.

    What that tells me is that there is a large group of microbusinesses that is relatively stable but there is also always a new group of them coming in. That group either grows into larger firm size classes, stabilizes at the micro-employer size or fails. So, employer firms that survive create jobs that tend to survive because all these small businesses appear to move toward some form of stability. Growing small businesses are actually the exception rather than the rule.

  6. I was beginning to wonder if anyone had an accurate handle on what we small business owners are experiencing and you proved that you do. Your article was on target and confirms what we are experiencing, and what we expected the future to hold. Our business has been on a see-saw for more than a year and sales come and go in spurts. Can’t borrow money from the bank to stablize the effect on our income because they want an arm, a leg and two hands to secure while taking an option on whatever you have left. Sorry state considering that our DUNN rating is quite high and considered excellent. Thank you for your honesty and your accuracy. It helps to know we aren’t alone, and that our analysis of the current state of affairs is correct. Maybe this can help us in our planning for the future, presuming we survive this economy to go forward.

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