US small firms are discouraged, hold back on spending, hiring

12 June 2012 17:58  [Source: ICIS news]

WASHINGTON (ICIS)--US small business owners remain discouraged about the near-term prospects for the nation’s economy, a key survey said on Tuesday, and consequently are holding back on capital spending and making few new hires.

The National Federation of Independent Business (NFIB) said that its index of small business optimism fell marginally in May to a reading of 94.4, which is “historically low”.

NFIB chief economist William Dunkelberg said that the record low index is “consistent with the sub-par performance of GDP and employment growth”.

US gross domestic product (GDP) growth in the first quarter of this year was 1.9%, down from the fourth quarter 2011 GDP performance of 3%, and the US unemployment rate inched up to 8.2% in May.

“In the last year, small business optimism has limped along, and today the sector is no better off than it was just over a year ago,” Dunkelberg said.

“The lack of progress is discouraging, producing no signs that economic activity will pick up this year at all,” he said. 

The well being of US small businesses is critical, because it is small firms – defined as those with fewer than 500 employees – that generate most new jobs across the country.

Dunkelberg said that in making spending and hiring plans, small business owners must consider likely future sales, tax rates, credit availability and interest rates, labour costs, health care expenses and regulatory compliance costs – “all of which are very uncertain”.

“Investments in jobs or plants and equipment are not the priority when people are still bracing for the worst,” Dunkelberg said.

“Levels of hiring and spending remained depressed in May, as did plans to do more in the near future,” he said, adding: “Expectations for increasing future sales continued to be weak, far below readings recorded in any other recovery period since 1973.”

NFIB said that the percent of business owners who expect better business conditions in six months was a negative 2%.

In addition, “more owners still expect the economy to deteriorate further than those who anticipate improvement”, the group said.

NFIB represents some 350,000 member companies.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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