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?


More in:

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.