Small Business Owners Are Getting More PessimisticCopyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
NEW YORK (AP) -- When the country recovered from recessions in the past, small businesses were usually the first companies to start hiring. But smaller companies are so pessimistic now that they're not taking on their historical leadership position.
The National Federation of Independent Business, which issues a monthly report on small business optimism, says "confidence in the future of the economy crashed in August." The group's optimism index -- which it wryly called the Small Business Pessimism index -- was down for the sixth straight month.
"The small business half of the economy is still in the `tank'," the NFIB said in its report.
The Biggest Problem: Sales
The NFIB optimism index is compiled from a survey of small business owners. Fewer survey participants said their sales were rising, and more said sales were falling, compared with July.
The outlook for the future isn't good. Thirty-four percent of owners surveyed said they expect their sales to fall in the next three months. Twenty-one percent expected sales to rise and 45 percent expected them to be unchanged.
Those aren't the kind of numbers that inspire confidence. William Dunkelberg, the NFIB's chief economist, noted that employers are unlikely to hire if they're unsure that they'll have the sales to justify a larger staff.
"As long as you can expect the new employee to pay for him or herself, you'll hire them," Dunkelberg said in an interview.
The government's report that employers added no new jobs in August shows that small businesses are hesitant to take chances. About 40 percent of the companies surveyed for the government's monthly job creation report have fewer than 20 employees. And Dunkelberg noted that the Commerce Department reported that retail sales were unchanged during August. Numbers like that also won't encourage small businesses to hire.
Modest Hiring Plans -- But Not Enough To Help
The NFIB said 11 percent of the owners it surveyed in August planned to create jobs in the next three months. Twelve percent plan to cut jobs, and 77 plan no changes. The group said those readings are at the low levels seen during a recession. The group predicted that the "unemployment rate could ease a fraction or remain unchanged" at 9.1 percent.
The government's weekly count of the number of people who applied for unemployment benefits also points to little change in the unemployment rate. The number rose to 428,000 in the week ended Sept. 10. That was the highest level in three months. Economists believe the number of applications needs to fall to around 375,000 and stay there before the unemployment rate can drop significantly.
What's Behind It All?
The crash in the housing market, which eventually set off the 2008 financial crisis, was seen as the biggest cause of the recession. Dunkelberg says the problem now is a lack of confidence in government. When Standard & Poor's lowered the government's credit rating in early August, it cited what it believed to be the inability of Congress to work on cutting the federal budget and deficit. Dunkelberg says consumers, who ultimately drive sales, have lost their confidence in the government as well. He noted that nine out of 10 people have jobs - but they're saving rather money than spending it because they're worried about the future.
"If Washington did something that made those nine out of 10 confident, they'd spend more," he said, and noted that "it's not just the economy, it's government" that worries people.
Business owners also appear to be lacking in confidence in the government. According to the NFIB survey, only 7 percent of owners expect business conditions to be better six months from now. Forty-one percent expect them to be worse, and 52 percent expect them to be unchanged.
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