Monday, August 3, 2009

Small business statistics show little improvement

Small businesses in the US continue to struggle. The National Federation of Independent Business issued their July report showing that optimism declines have slowed (although still declining), but that hasn't translated into sales. The chart below shows expected vs. actual sales - looks like some wishful thinking.

Small business sales

Earnings continue to drop, though the decline levels have not been as steep (though still extremely steep based on historical levels). The explanation here is simple - small businesses have been laying off employees to cut costs.

Small business earnings

One statistic that economist point to as a positive sign is the massive reduction in inventories.

Small business inventories

The assumption is that as demand picks up, businesses will be able to improve margins because they won't be forced to move old inventory. However it is entirely possible that some of the inventory reduction is permanent. Businesses just shrunk in size in order to survive, and won't be able to capitalize significantly on any improvements in demand.

It's an uphill battle for small business and many are getting ready to call it quits. Yet any sustainable job growth relies to a large extent on the smaller firms. That is why Congress must be extremely careful with any healthcare reform or tax increases they push through, to make sure any new legislation does not create additional burden.

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