Small Business is Not Booming
The National Federation of Independent Businesses just released its monthly report on the condition of small businesses nationally. The report is based on a national survey and state-level results are not available. However you feel about NFIB or their advocacy positions their monthly report is a valuable source of information about the issues and factors affecting small businesses.
Robust economic growth does not occur unless small businesses are confident, healthy, and hiring. That seems especially true in NH and is one reason NH’s job growth has been slower than the national average. I especially pay attention to the headline portion of the NFIB’s monthly survey, it’s “Small Business Optimism Index”, because it seems to be a pretty good indicator of near-term job growth in the U.S. and NH. The simple correlation between the NFIB Small Business Optimism Index (lagged 3 months because it takes some time for optimism/confidence to affect hiring plans) and U.S. Job Growth is about .68, while the correlation between the NFIB Index and NH employment growth is about .74. Thus the relationship is slightly stronger between the Index and job growth in NH than it is for the U.S. as a whole. The NFIB Index inched-up in February, but overall it remains relatively low, suggesting that small businesses aren’t yet ready to provide the boost to hiring that typically occurs in a strong recovery from recession.
A more troubling indicator of the health of small businesses (and thus hiring plans) comes from the Experian/Moody’s Analytics Small Business Credit Index. This quarterly assessment of the financial health of small businesses suggests the balance sheets of small businesses (in the aggregate) deteriorated in the fourth quarter of 2012. According to the quarterly report:
“Delinquent balances rose, pushing the share of delinquent dollars higher to 9.7 percent from the prior quarter’s 9.4 percent. A slowdown in personal income growth led to sluggish retail sales, hurting small-business revenues. Though small firms have worked to trim their labor costs in recent months, sales have fallen more quickly, forcing many small companies to borrow funds to cover their payroll expenses…..The next six to nine months likely will be lean ones for small businesses as rising taxes strain household budgets and nervous firms of all sizes postpone hiring, thereby stunting the jobs recovery. Consumer sentiment is likely to remain subdued, and spending will be underwhelming, which will keep pressure on small-business balance sheets.”