Small Business Still Not Hiring. Why?

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I wouldn’t put myself in the Larry Kudlow “V” shaped recovery camp, but I will admit to having become somewhat more sanguine about the prospects for a self-sustaining recovery. On balance, the numbers have seemed to paint a picture of at least a healing economy. So when I read this in the WSJ this evening I was more than a bit taken aback.

Small-business hiring continues to show little sign of a recovery, despite recent efforts by Washington to stimulate job creation.

April marked the 27th consecutive month in which small businesses either shed more or the same number of jobs that they added, according to a monthly survey to be released Tuesday by the National Federation of Independent Business, a trade group in Washington, D.C. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey’s 35-year history. Going forward, more small-business owners say they plan to eliminate jobs compared with those that expect to create new jobs over the next three months.

The latest study was conducted during the month of April and reflects responses from 2,197 U.S. small-business owners. The findings follow the Labor Department’s report on Friday showing that the overall U.S. economy added 290,000 jobs last month, although the unemployment rate ticked up to 9.9% from 9.7%.

Last month, businesses that employ fewer than 50 workers increased their payrolls by just 1,000, while businesses with between 50 and 499 workers added 17,000 jobs, according to payroll company Automatic Data Processing Inc.

William Dunkelberg, chief economist for the NFIB, says more small businesses aren’t hiring because demand for their goods and services isn’t yet strong enough for them to justify bringing new talent on board. “If you don’t have any sales, you don’t need to hire anybody,” he says. (See related article, “Entrepreneurs Remain Wary.“)

You know the story — small businesses are the engine that drives the US economy, particularly employment. So how do you square this circle. The article implies that there is little employment growth and really little positive in terms of the overall business climate for small businesses in this country. That hardly comports with the heady job creation reported last Friday nor does it support the contention that the economy is expanding faster than expected.

Something is amiss here and I will frankly admit to not having a clue as to what it might be. Perhaps one or the other sets of numbers contain grievous errors, or perhaps the small business sector is simply lagging behind the growth bigger companies are experiencing. Nevertheless, I find it troubling that such an important piece of the economic fabric of the country appears to be mired in the muck.

Any thoughts are appreciated.

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