Recession is Over, But No Recovery Yet for Small Business Economy





Economists at the National Bureau of Economic Research (NBER) have decided that June 2009 marked the end of the Great Recession, putting us over a year into the economic recovery in the United States.

Regardless of what the NBER economists say, few small business owners think the economy is very good right now.

But what do the numbers say? How does the small business economy compare to what it was like before the recession?

I’ve pulled together some statistics that show that:

  • Self-employment and new business creation are down
  • Fewer people are working at new and small businesses
  • Owner pessimism is up, with fewer business owners expanding sales and more experiencing cash flow problems
  • Fewer owners are making capital investments, hiring, or increasing compensation
  • More businesses are going under
  • Fewer businesses are having their borrowing needs met, and trade credit is down
  • Angels are financing fewer companies
  • Venture capitalists are investing less money in fewer deals
  • VC deals are smaller and valuations are rising at fewer companies
  • VC-backed companies are experiencing fewer exits and at lower valuations

Small business recession recovery

Click here for PDF version of slide show with numbers

The story is very clear. Recovery or not, the economic situation for small businesses is still considerably worse than before the recession began.

15 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

15 Reactions

  1. Shane,

    Thanks for this data. It confirms what I’ve been feeling.

    It’s another reason why it’s important for us to live in reality-the reality being that if there are no major changes to things like small business credit availability, our huge trade imbalance, and other things that negatively affect small business, then things won’t change too much on your chart.

    Right?

    The Franchise King

  2. Martin Lindeskog

    When do you think the recovery will happen?

  3. Scott Shane

    Martin,

    Technically, the recovery has started even for small business, but it is very weak. So most measures look a little better than they did at the end of the recession in June 2009.

    But if you are asking when will things be like they were before the recession, I doubt that most of these measures will be back to where they were before the recession started (November 2007) for several years.

    Joel,

    I think the problem is embedded in the tremendous uncertainty faced by small business owners right now.

    I wrote about this last week in my column on BloombergBusinessweek. This is a summary of what I said: small business owners, on average, are not very confident about the future. The measures of such things remain at historical lows.

    If you have no confidence that the future will be better, you don’t invest or hire. Because economic growth depends on these actions, we don’t get much growth.

    One of the reasons that confidence is so low is that everything is so uncertain. Small business owners don’t know what health care reform will cost them. They don’t know how much their taxes will increase. They don’t know what new regulation they are going to have to deal with.

    If your future is uncertain (you have no ability to predict what will happen) being confident is difficult. Without confidence, you don’t act.

  4. I’ve never put much stock in the NBER. The general business environment is still very pessimistic and business owners are being very careful. However, I do feel like the companies that are succeeding (and there are still plenty of them) are establishing very strong foundations that will allow them to emerge from this period much stronger than before.

  5. So, this is where statistics do lie? I think that one can simply go out there and get 10 businesses to tell them their present state of mind for you to get an idea how they think these days. The fact that there is an air of fear going on is unhealthy for entrepreneurs; it doesn’t inspire business innovation or nurture bright minds at all. Are we seeing the decline of the golden age of entrepreneurship? It’s too soon to tell and for now, we just have to watch and wait.

  6. Anita Campbell

    Ajeva, I agree with the need to stay positive. Success starts in the 6 inches between your two ears. If you let fear take hold and don’t start with an attitude of confidence and the knowledge that customers are still buying, failure becomes a self-fulfilling prophecy.

    Despite what economic statistics may say, my anecdotal experience shows a different picture than this. I can’t tell you how many businesses I know are booming right now. Clearly, every business is not, and some small businesses are having difficulty. But while statistics may be true as a whole, they unfortunately obscure the evidence of those who are growing their businesses, hiring, and expanding.

    – Anita

  7. I have not seen any improvement in the business climate this year. In fact, some of my customers who own a business have had to close them. Others are barely hanging on. I am still down 30% from last year and I do not see any improvement coming anytime soon. It may be the market I am in (Arizona) or it may be that people are still afraid and are not spending money. I ahve had to convert a fulltime employee to parttime just to decrease cash outflows. It is still a case of the rich getting richer and the rest of us get to suffer.

  8. Anita and Ajeva,

    I agree that we should be positive but we can’t be stupid. As a small business owner I am doing what ever I can to boost sales. I have invested in new products and new world markets. These are things I can control. What I can’t control is what is going to happen to small business with tax increases, health care and whatever else the polititions decide to lump on us. I had to layoff some employees in early 2009 because of decreases in sales. Now because of the political climate I would rather have my employees work more overtime than face the rathe of higher employment insurance and health care penalties. As a business owner I am going to wait and see what happens after January before any personnel descisions are made.

  9. We have enrolled 45 new students in the last 90 days. The recession seems to be over for us. For the last
    couple of years we were only getting like 6 to 8 new students per month which is pretty slow for us compared to many other years in our 13 years in business.

    15 new students per month is more normal for us which has now been back to normal for 3 months now.

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