It's A Small Business World After All

The latest numbers on small business hiring aren't good, but it's worth looking at why.

The National Federation of Independent Business said its monthly index of small business optimism fell 1.2 points in March to 86.8 and below 90 for the 18th consecutive month.

"The March reading is very low and headed in the wrong direction," said Bill Dunkelberg, NFIB's chief economist.

"Something isn't sitting well with small business owners.

Poor sales and uncertainty continue to overwhelm any other good news about the economy." Small businesses normally account for the bulk of new jobs, making them an important part of the recovery.

The problem is small businesses are consumption-driven businesses.  They rarely manufacture anything that's not available from a large corporate store, so in general people pay a little extra for their location's convenience or their service level, or for the quality of the product.  You pay a little more for the local ice-cream shop's homemade milkshakes, or the boutique's jeans because you don't have to drive downtown, or the restaurant's fish special because it's the best fish plate in town, or for the extra knowledge of the PC repair shop's fix-it guy.

But in a recession, price is king.  Paying a "little extra" becomes far less important on the scale of things, and paying less becomes far more important.  That favors larger businesses who can provide goods and services in bulk, and do so with less overhead.  Small businesses are the most vulnerable to recessions because they are small.  When times are good, they can adjust rapidly and grow.  but when times are bad, they have to cut back sharply.  When we're all looking to cut back on costs, it's the local small business that get hurt first.

But industry groups are quick to blame taxes and health care legislation as the problem.  The solution: tax incentives for small businesses already in health care legislation and a raft of small business tax incentives for hiring that President Obama wants, the Republicans are of course against.

Dunkelberg blames that in part on uncertainty about Washington's policies, particularly those related to taxes and health care.

"There is no legislation that has passed or that is promised that is encouraging to small business owners and the news about the fiscal crisis and the need for more taxes is hardly encouraging," the trade group said.

Trade groups like the NFIB and the Chamber of Commerce have been against Obama from the beginning, even when he's putting forth Republican-tested, conservative ideas like tax incentives targeted at hiring.  The real problem is the fact that when your economy loses 8 million jobs, the billions lost from purchasing power means small businesses just don't have the sales to hire, taxes or no taxes.

The real problem is the fact the economy got skunked by Too Big To Fail.  Those small enough to fail are now doing so.   And that happened before Obama even won the election.