04 April 2013 21:11 [Source: ICIS news]
By Joe Kamalick
WASHINGTON (ICIS)--While major US stock indices are doing very well, there are disquieting indications that the nation’s overall economy is not keeping pace with the galloping growth in share values and that the still wobbly recovery may be in trouble.
The chamber’s survey found that more than one-quarter of small businesses – 27% – lost employees in the last year, and a majority, 54%, did no hiring at all.
Those surveyed also indicated they are not likely to do much hiring in the months ahead, with only 20% of small business owners saying they might add workers in the near term.
That is below the 22% who said in March last year that they might do some hiring.
The health of and prospects for small businesses are important because small firms – judged to be those with 500 or fewer employees – traditionally generate most new private sector jobs (64%) in the US economy.
According to the US Small Business Administration (SBA), small businesses number nearly 28m and represent 99.7% of firms that employ workers other than the business owners.
Small operators far outnumber major corporations, as the SBA says the nation is home to a much smaller contingent of big players, with only 18,500 firms having 500 or more employees.
The chamber’s survey reflects earlier samplings of small business sentiment by the National Federation of Independent Business (NFIB), which reported last month that small firms are troubled by multiple uncertainties in federal policies and are unlikely to do much hiring anytime soon.
The NFIB said that its survey showed that three-quarters of small business owners think that business conditions will be the same or worse over the next six months. Consequently, they are holding back on making capital investments and hiring.
Until business owners’ expectations for the economy improve substantially, said the NFIB, “there will be little boost to hiring and spending from the small business half of the economy”.
A major factor in business uncertainty, according to the chamber’s survey, are the many unknowns about President Barack Obama’s signature health care plan for the nation.
While the ACA is hugely complex, its central “employer mandate” requires that any firm with 50 or more employees must provide health insurance and coverage for all workers or pay stiff fines – essentially a tax – to Uncle Sam.
“Requirements of the health care law are proving to be a threat” to small business, said the chamber survey report.
“Over two-thirds [71%] agree that the recent health care law makes it harder for their businesses to hire more employees,” said the chamber.
More chilling still, the survey said that the ACA’s employer mandate “will cause small businesses to reduce hiring [32%], cut back hours to reduce the number of full-time employees [31%] and stop providing health insurance [27%]”.
Critics of the ACA worry that it will force many of the nation’s 28m small businesses – especially those with workforces numbering between 50 and 100 – to simply shed workers or turn full-timers into part-time employees in order to get below the 50-worker threshold of the ACA.
“Over three-quarters [78%] of small business owners are anticipating that the 2014 health care tax will negatively impact their business,” the chamber study said.
While they face uncertainty at home, small businesses may also be facing declining sales abroad – and those foreign sales have proved a salvation for US businesses large and small since the end of the recession.
The SBA says that small firms account for 98% of those US businesses that export their products to other nations.
That figure is important, because in the three-and-a-half years since the US Great Recession ended in June 2009, export trade has been the main engine of the nation’s mediocre GDP growth since the recession.
The question now is whether US exporters can continue to drive the recovery almost single-handedly. Perhaps not, simply because foreign demand is weakening.
A key measure of international trade, the Baltic Dry Index (BDI), began a sharp fall-off late last year and has remained well below levels seen in the first post-recession years. The index is now trending down further.
The BDI is a daily measure of ocean freight rates and the demand for cargo shipping. When the index is high, business is booming. But when the BDI is low and falling, it does not bode well for global trade and US export prospects.
A clutch of new indicators also suggest that the US economy in general and employment in particular may be on the cusp of a new downturn.
The US Department of Labor (DOL) said this week that unemployment claims rose to a seasonally adjusted level of 385,000 for the week ended 30 March, a gain of 28,000 from the prior week.
The department’s four-week moving average for unemployment claims also rose, up by 11,250 to 354,250 applications for assistance.
For the first quarter as a whole, said the firm, “quarterly job cuts reached their highest level since 2011”.
In addition, the March layoffs “mark the second consecutive month and the fourth time in the last six months that the job-cut total was higher than the year-ago figure”, the company said.
Lastly, Automatic Data Processing (ADP) reported that private sector employment increased by 158,000 jobs in March from February, a level much lower than many economists had been expecting and down significantly from the 237,000 jobs added in February.
Economists had been expecting employment gains well above 200,000 in ADP’s report.
At only 158,000 new hires for last month, the ADP numbers suggest the economy’s job-generating ability is nearly stagnant.
The US economy should generate about 150,000 new jobs each month just to accommodate population growth and new workers entering the job market for the first time.
To make any headway in bringing down the nation’s 7.7% unemployment rate, economists say the economy needs to add around 300,000 new jobs each month for multiple quarters.
ADP, which handles payroll for 24m workers across the US, noted that its payroll and hiring data typically presage the official Commerce Department monthly employment report, which is due out tomorrow, Friday.
Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy
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