Why Small Businesses Are Not Creating Jobs

By Steve Barlotta, CPA

Last Friday we learned that the economy added 69,000 jobs last month, well short of the expected 158,000. As a result, the unemployment rate creeped up to 8.2%; both the March and April job creation numbers were revised as well. The unexpected jobs report sent shock waves through Wall Street and left many economists and consumers questioning whether the labor market will ever recover to our pre-recession levels.

In a blog a few months ago, I suggested that the lack of small business job growth might be attributed to larger banks not lending enough and our lawmakers sitting on their hands.
Well, the fact is that banks still are not increasing their small business lending. A new report from Thompson Reuters/PayNet indicates that lending to small businesses decreased for the fourth month in a row . The report also shows that small business lending is at its slowest annual growth rate in two years. But recent developments have led me to believe that there’s something else afoot in this ongoing saga.

A recently released 2012 small business survey by U.S. Bancorp states that “the number one business issue on their minds in the 2012 election is healthcare reform”. In that same survey, 71% of small business owners believe the U.S. is still in recession. This negative sentiment and uncertainty can be a major reason why small businesses don’t want to borrow right now. As it follows, if these businesses don’t borrow their likelihood of hiring new employees diminishes. Ironically, the U.S. Bancorp report found that 69% of small-business owners felt the financial health of their companies to be “good” to “excellent”. And 29% of the respondents said their revenue increased from the prior year.

Why is this topic so important to me? It is a subject that is near and dear to me. I am a small business owner and most of my clients are as well. Most importantly, our economy cannot go forward without the small business sector consistently creating jobs month to month.  Small businesses represent more than 98% of all employers and created 70% of the jobs in our country from 2003 and 2010, according to a recent U.S. Small Business Administration report.

With its myriad of new taxes and regulations, there is a real concern among small business owners that President Obama’s health care reform will adversely impact their companies. Couple that with Europe’s worsening sovereign-debt and banking crisis, and you create a recipe that at best will probably keep small businesses in a holding pattern over the next five months. One thing is certain, any downturn in the small business community will have major implications for lawmakers, federal reserve policy and, most importantly, the 2012 presidential election.

Source: Small-Business Slowdown, By Elizabeth MacDonald, FOXBusiness,
June 1, 2012.