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Trouble Again in the Small Business Sector?

Several recent indicators suggest that the small business sector may be weakening again.

• Revenue growth has flattened. The Intuit Small Business Revenue Index [1], which uses data from users of QuickBooks Online to measure small company sales, increased by only 0.01 percent in April, a significant decline from the 0.4 percent the measure increased last December.

• Small business owners’ sales expectations are weakening. The fraction of respondents to the National Federation of Independent Business’s (NFIB) monthly survey [2] of its members who report expectations of rising sales over the coming three months shrank from 9 to 6 between December 2011 and April 2012.

• Small business employment growth is slowing. The percentage of respondents to the NFIB survey [2] who increased employment over the previous three months declined from a net of positive 1 percent in December 2011 to a net of negative 4 percent in April 2012.

• Small company employees are working less. The Intuit Employment Index [3], which measures employment-related activities at companies with fewer than 20 employees who use Intuit Online Payroll, shows that the number of hours worked by hourly employees has dropped 2 percent since December 2011.

• Fewer companies are borrowing. The Thomson Reuters/PayNet Small Business Lending Index [4], which measures the total amount of small company credit, is 15 percent below where it was last December.

• Small business owners are more reluctant to expand. The NFIB survey [2] indicates a decline in the share of small business owners who think the next three months are a good time to expand their businesses from 10 percent in December 2011 to 7 percent in April 2012.

Making economic forecasts is a tricky business, made more difficult for the small business sector by the lack of precise measures being released by the government in a timely manner. Moreover, measures other than the ones mentioned above tell a more positive story about what’s been happening with small businesses lately. However, these negative signs have me concerned that small business sector is weakening once again.