Are small businesses optimistic enough to hire?

February 23, 2011

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Do you own or work for a small business? How's your business faring these days? Are you hiring? 

February 16, the House Committee on Small Business held a hearing titled "Putting Americans Back to Work: the State of the Small Business Economy." Speaking before the meeting, Rep. Nydia M. Velazquez (D-NY), ranking member of the Committee, delivered a statement that said, in part, "the economy has begun to grow again and a recovery is underway. However, it is clear that there is a long way to go and entrepreneurs are still struggling on many fronts." 

Velazquez noted that "many small businesses are more optimistic than they have been in a long time," as confirmed by the most recent NFIB Optimism Index, which is at its highest point since December 2007, and surveys by the National Small Business Association (NSBA) and Wells Fargo/Gallup

Velazquez also said that small firms are finding easier credit conditions, which is a "very positive development since small businesses have been all but locked out of capital markets for a long time." But she cautioned that "this positive news is tempered by the challenges we see in the labor market. With losses of more than 8 million jobs in 2008 and 2009, the four consecutive months of positive job creation we have seen are simply not enough. The unemployment rate has declined significantly, but we are still not seeing the level of employment gains we need to achieve a full recovery. According to research, small firms have shed jobs at a more rapid pace than larger firms. In addition, they have chosen not to add employees even though they needed to, citing the uncertainty they face about sales revenue and cash flows as the top reasons for not doing so."

According to the NSBA 2010 Year-End Economic Report, the number of small businesses that reported hiring new employees rose from 11 percent to 15 percent, and 25 percent expect to hire in the coming year. Unfortunately, the number of small-business owners projecting no change in employment in the coming year — 64 percent — is at its highest point in nearly three years. 

As part of the hearing, the Committee solicited testimonials from small business owners. Among those who testified was Terry Frank, owner of Nature’s Marketplace in Oak Ridge, Tenn. In her written testimony, Frank described how she and her husband set out to achieve the American dream 20 years ago by opening a produce market that eventually grew into "a busy market with gifts and eatery where we prepare sandwiches and soups and bake cakes and other desserts." 

Throughout their endeavor, the Franks have seen government help, such as the health inspector, who advised them on how to proceed with their business. "He understood his role as not an inhibitor or obstacle to commerce, but a facilitator. In that respect, by helping us grow he has helped the economy grow and in the process, a natural growth in government revenues." 

But the Franks also have witnessed how government discourages commerce, and Terry Frank's testimonial addressed specifics, from the tax policies that are too complex to navigate — even by someone with a college degree "who initially set out to be an accountant" — to viewing small business as a "cow to be milked," and failure to stabilize the dollar and limit the Fed. 

The other testimonials are equally compelling. All address ways in which the government impedes rather than helps small business. 

The comments in Frank's that jumped out at me as an indicator as to whether small business owners are more inclined to hire now that many are feeling more optimistic were these: "My husband and I have personally worked longer hours instead of hiring another employee because of our fear of the economic future. Most of our uncertainty is about what government is going to do next to hurt business prospects. Indicators look to more government programs, meaning more money out of our operating capital." 

Lingering uncertainty is stalling hiring. Maybe it’s time to stop milking and start feeding the cow?

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