Although the overall economy has been in recovery for more than 16 months, the small business sector hasn’t been included. Since the recession ended in the summer of 2009, measures of the health of small business have either stagnated or weakened.
Consider first what small business owners think about the effect of the economy on their businesses. In July 2009, 29 percent of respondents to the Discover Card Small Business Watch said their business’s economic situation was improving. In October 2010, the figure was 28 percent.
Similar numbers can be seen from the twice-a-year American Express Open Survey of small business owners. In September 2010, 17 percent of those surveyed said that their business risked going under because of the economic climate, up from 11 percent in March 2009, shortly before the recovery began.
It’s not just small business owners’ perceptions that are more negative now than when the recovery began. The government’s numbers show the same pattern. Bureau of Labor Statistics (BLS) figures show that the number of people self-employed outside of agriculture has not come back since the recovery began. A seasonally adjusted 50,000 fewer people were self-employed in September 2010 than in the first month of the recovery.
Business start-up rates among those out of work continue to decline. According to a survey by outplacement firm Challenger, Grey and Christmas, only 3.9 percent of job seekers started businesses in the second quarter of 2010, a much lower percentage than in the first quarter of the recovery, when 11.8 percent sought to found companies.
Small business job loss also didn’t stop with the end of the Great Recession. According to the ADP Employment Report, 560,000 fewer people worked in non-agricultural private sector businesses less than 500 employees in September 2010 than in July 2009.
Small business owners are also investing less now than at the end of the recession. In July 2009, 23 percent of the respondents to the Discover Small Business Watch survey said that they were increasing spending on business development. In October, the figure was 22 percent. In September 2010, only 40 percent of the respondents to the American Express Open survey of small business owners said they planned to increase investment in their businesses, down 7 percentage points from March 2009.
Hiring plans are also headed in the wrong direction. In September 2010, 59 percent of small businesses responding to the American Express Open survey said that they were planning not to hire or cut back over the next six months, while only 48 percent said the same thing in March of 2009, in the last quarter of the recession.
Small business accounts for half of the private sector in the United States. Without a recovery in this part of the economy, growth in the overall economy will be tepid at best. That’s why these numbers have me worried. It is one thing to have seen a worsening small business sector during the recession, but it’s quite another to see backtracking in the recovery.
If economic conditions are getting worse in the small business sector, that’s not a recovery. Another R-word is used to refer to that situation. And I think all of you know what that word is.