Small Business Sentiment Flat in February

The Discover small business economic confidence index was essentially flat for February 2010.  Perhaps the only good news in the report was the fact that the index is actually up 13 points year-over-year. While the small business economy is still frighteningly weak, it is hard to believe that we are substantially better than a year ago.  Were things that bad last year?  Absolutely!

According to the survey results, a whopping 70% said the Federal stimulus had had no impact on their business. This comes as no surprise to many small businesses who have had to watch the big companies get billions in bailout funds while thousands of small businesses close their doors.

With respect to SBA loans, the Discover survey found 91% had never applied for an SBA Loan.  Considering the typical profile of a Discover small business surveyed company, this is not that telling a statistic.

As further evidence that the Federal government is out-of-touch with small businesses, 69% of the businesses surveyed said they were unlikely to hire new workers if the $5,000 tax credit for new hires was enacted.  What the Federal government should be doing is penalizing large companies that lay-off workers by requiring extended severance payments, and requiring big businesses to pay the laid off employees’ health care premiums for one year or until the worker gets a new job.  That would deter additional lay-offs and stop unemployment growth.

What makes the Discover small business survey so important is that it surveys companies with fewer than 5 employees.  Discover estimates that there are 22 million companies with 5 or fewer employees in America.  If each company hired 1/2 a full-time equivalent employee they would add 11 million jobs and unemployment would drop to zero.

This latest small business survey is further evidence that the Federal government is out-of-touch with the millions of small businesses.  It also shows that any recovery in the economy is likely to skim over the small business sector.   In my opinion, small businesses are correlated to disposable income growth and consumption.  Until unemployment drops below 6-7% disposable income will stay soft, and so too will the small business economy.

Hugh Connelly

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avatar Posted by on Apr 6 2010 Filed under Economics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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