Small business confidence declines despite hiring increase in May
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Small businesses were responsible for the bulk of hiring in May, but a third month of diminished confidence among small-business owners could jeopardize future job creation.
Small businesses accounted for 27,000 of the 38,000 jobs created nationally last month, according to the ADP Small Business Report, even as an optimism index from the National Federation of Independent Business was showing a decline. The index tracked a 0.3 point drop to 90.9 in May, following a 0.8 point dip in April and a 2.6 point slip in March.
The NFIB Index of Small Business Optimism is based on a random survey of 733 businesses in the federation's membership.
Attempts to boost small businesses through tax cuts and other federal measures have not addressed overall economic concerns that fuel the insecurity, said NFIB chief economist Bill Dunkelberg.
Only 5 percent of owners surveyed thought this was a good time to expand their business, and 71 percent of those blamed the weak economy for their hesitance. The net percentage of owners expecting better conditions in six months dropped to negative 5 percent, 15 percent lower than in January.
"Washington is throwing misdirected policies at the problem, offering tax breaks for hiring and equipment investment but acting surprised when they don't bear any fruit," Mr. Dunkelberg said. "The failure to understand why small business owners are not hiring or investing has resulted in a set of policies that have not been very effective, and Main Street is suffering."
A quarter of the business owners surveyed cited weak sales as their biggest problem, with 36 percent reporting lower sales. One in 10 said inflation was the most significant issue, and 31 percent of owners said they had raised their average selling prices.
Despite taking the lead in hiring for May, the average small business has not seen much of an increase, adding the equivalent of just 0.01 employees per firm over the past three months, or "virtually no improvement," according to the index.
The businesses don't appear to be planning to step up the pace anytime soon. Over the next three months, only 13 percent plan to increase employment, while 8 percent are planning cuts. After seasonal adjustments, a net percentage of owners planning to create jobs falls to negative 1 percent.
Spending on equipment and other capital improvements is historically low, with only half of firms reporting capital expenditures in the last six months and only 20 percent planning capital projects in the next three to six months.
First Published June 17, 2011 12:00 am
