Tougher Times for Small Business

It appears the view on how business is doing today may be driven by the size of the company.  It’s not just that big global giants are fine and everyone else is struggling.  Instead it seems that some of the good news from globally diverse companies that are managing costs effectively is in fact reaching a broader group of businesses.  The National Association for Business Economics Survey reports continued business growth, albeit at a slowing rate.  The survey uses an index that measures the net of firms reporting business strength vs. weakness in their industry.  It was 42 in July, down from the year’s high of 51 in April.  However, there is significant variability buried in that number.  (You need to be an NABE member to see the survey details, so this is just a reaction to the summary.)  The high index score was 69 in the “goods-producing” sector while the finance, insurance and real estate sector was a 16.  Based on what one reads in the news these days it’s a good bet that finance and insurance were pulled down by real estate on that one. 

 Job creation trends in the NABE Survey are going in the right direction.  Firms increasing payrolls were up to 31% (vs. 6% a year ago).  Firms cutting jobs dropped to 14% from 36% a year ago.  Those with plans to add employees in the coming six months rose to 39%.  All of the participants indicated they expect positive economic growth for the remainder of 2010, though the rate they expect that growth to occur has declined since the start of the year. 

These results are in stark contrast to the Kaufman Survey of Independent Businesses and the Intuit Small Business Index.  Intuit surveys firms with less than 20 employees, and the view from this group’s perspective is not pretty.  Their survey shows the small business hiring trend dropping below the national employment figures, going up less than 1% in June.  Hours worked per employee did go up as well, but at a slower rate than earlier in the year.  The only thing that continued a steady upward climb was compensation per employee. 

 My take on these conflicting pictures of the economy is that as businesses get smaller and therefore more dependent on local economic conditions; the impact of the slow recovery is stronger.  That would auger well for good economic news to come.  However, if this were the opening of an episode of Forensic Accounting CSI, there would be plenty of discussion about why this is a weak conclusion.  Correlation does not create causality.  Particularly given the diversity of the research being looked at,  sample selection may be creating significant distortion.  Since no alternatives are as attractive, I’ll trying hanging on to the ‘good things come to those who wait’ school of economic theory.