Latest Small Business Research: The News Is Not Too Bad

Generally, there are two kinds of small business research. There are the research reports that describe small businesses, and then there are the studies that let everybody know how small businesses are doing.

Given the depths of the recent recession (and the fact that certain politicians are trying to make the case that their economic policies have been successful), it’s not surprising that we’re seeing so much of the latter in recent months.

For those small business watchers, this month’s research probably generated a relieved sigh or two. Things aren’t exactly hunky-dory, but they are getting quite a bit better.

Not Too Bad News in the Research

2010 Year-End Snapshot

The NSBA released their 2010 Year-End Economic Report (PDF) this month, and the news is mixed. Everything is better, but nothing is as good as it needs to be.

Small business owners seem a little more optimistic than they were six months ago, but that isn’t really saying very much. Almost two-thirds of them expect economic growth to be flat this year, but at least the number expecting a double dip recession has declined from 29 percent six months ago to 13 percent now.

The number of small business owners who express confidence in their own firms was also up around two-thirds (66 percent, up from 59 percent) and a small and growing number (15 percent, up from 9 percent) are growing now.

Almost four in 10 small business owners are reporting increased revenues (up from 26 percent in July 2010) and, for the first time since 2008, a majority of small business owners (54 percent) expect their revenues to improve this year.

There has been some very modest improvement in reported hiring plans, as well. Fifteen percent of small business owners report new hires over the last six months (up from 11 percent) and that’s an improvement, but only 25 percent expect employment increases over the next 12 months. From these numbers, it seems pretty clear that improvements in the labor market are still a long way off.

The Employment Scene

Speaking of hiring plans, the Labor Department released its quarterly Business Employment Dynamics (PDF) data for the second quarter of last year. During that quarter, gross job gains from opening and expanding businesses totaled 6.9 million, while gross job losses from closing or contracting businesses totaled 6.2 million, for a net gain of 700,000 jobs.

The big job creators for this quarter were small businesses with between 20 and 49 employees, which generated 127,000 jobs net, and firms with between 100 and 249 employees, with 124,000 net new jobs. The largest firms, with over 1,000 employees, generated a respectable 113,000 net new jobs over the quarter.

Interestingly, it appears that firms with between 100 and 999 workers recovered first from this recession. Those three firm size classes (100 to 249, 250 to 499, and 500 to 999) were the only ones posting positive net job gains for both the first and second quarters of 2010.

Bear in mind that the monthly employment situation numbers released by the Labor Department are culled from the establishment survey (number of net new jobs for the month) and the household survey (the rate of unemployment). Neither of those data sets provides the complete picture because they only offer net numbers.

The business employment dynamics gives us a much more complete picture because it shows both total number of jobs created and total number of jobs lost. Even during the blackest days of the Great Recession, when the economy was losing upwards of 700,000 jobs per month, jobs were still being created by businesses in every firm size class.

Another nice thing about this data series is that the data lag is so short — only three calendar quarters. (That may seem like a long wait to you, but it’s better than a two-year data lag.)

The Financing Picture

This month also saw the latest annual release of Small Business Lending in the United States (PDF).

The study uses data reported by financial institutions to their regulators, which are then consolidated into the Consolidated Reports of Condition and Income (Call Reports) and Community Reinvestment Act (CRA) reports. Financing instruments are further divided into Commercial Real Estate (CRE) and Commercial and Industrial (C&I) loans.

Overall small business lending fell 6.2 percent during the 2009-2010 period, while large firm lending declined even more (8.9 percent).

According to the report, CRE lending to small businesses peaked in 2008 and then declined slightly in 2009. Evidently, it was not until 2010 that the bottom fell out of the commercial real estate market. The largest decline in CRE loans was in the smallest dollar category; CRE loans of less than $100,000 declined by more than 16 percent.

The news at the other end of the small business real estate lending spectrum wasn’t much better. The largest small business real estate loan category was for loans between $250,000 and $1 million, which fell by 6.4 percent. Overall, small business CRE lending declined by 8 percent.

On the other hand, when it comes to C&I small business lending, the difference between 2008 and 2009 was much more stark. Loan volume was down by about 4 percent, or $13.2 billion. That rate of decline held steady over the 2009-2010 period. Loan volume fell by another 4 percent, and another $13.3 billion.

The steepest drop in the small business C&I category was in loans between $100,000 and $250,000. Between 2008 and 2009, this category of small business loans fell by only $3.8 billion, amounting to about 3 percent. One year later, however, the decline in loan volume tripled, down $12 billion or 9 percent.

By contrast, C&I lending in the smallest category actually increased just a little; it was the only lending category to experience an increase of any kind. Those so-called micro oans of less than $100,000, which comprise 88 percent of all small business lending and are mostly credit card debt, increased by 2 percent or $2.7 billion, to $137.2 billion.

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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.