America’s “Small Business” Catastrophe

Over the past four years, after financial crisis hit in 2008, the U.S. economy has experienced very little in terms of an economic recovery. Since it has been such a long time, and because this has been the weakest economic recovery on record since the great depression, there are negative consequences the economy will inevitably experience.

Small businesses are a critical part of job creation in this country. They accounted for 48.5% of the job creation in 2011 and 51.6% of the job creation year-to-date (source: ADP).

The U.S. Census Bureau just released its latest findings. Unfortunately, its latest data only dates back to 2010, but its report is nonetheless instructive regarding the repercussions of the supposed economic recovery.

In both 2008 and 2009, the U.S. lost about 168,000 businesses respectively (source: Reuters, June 26, 2012). Thankfully, in 2010, the pace of businesses going under fell, but the U.S. still lost 36,800 companies.

At the end of 2010, there were 7.4 million businesses in this country; while, in 2008, there were 7.8 million businesses in the U.S.!

Obviously, many construction companies went under after the credit crisis. There were 6.4 million jobs lost from the closing of these businesses from 2008 to 2009, which does little to bolster job creation and pours cold water on the notion of an economic recovery.

From 2009 to 2010, the pace of job losses slowed, but there were 2.5 million fewer workers needed, which again, puts into question the whole theory of job creation and the economic recovery.

Of the 7.4 million businesses in this country, just over four million are sole proprietors or firms with four employees or less. How many of these businesses are just getting by in this supposed economic recovery? How many of these businesses suffered terrible revenue losses since the financial crisis hit in 2008?

Unfortunately, there are no data available to answer these questions, but I pose them because they are critical to understanding the health of small businesses in this country and ultimately the health of the U.S. economy.

The National Federation of Independent Business (NFIB) regularly conducts a survey to feel the pulse of small business here in the U.S. Its latest index readings, from May 2012, are at a level that is normally found in recessionary periods!

More small businesses actually feel the U.S. economy will deteriorate in the next six months as opposed to growing. One in four small business owners believe this is a bad time to expand their business, which puts into question the whole economic recovery theory.

In light of this, fewer small businesses were looking to increase their capital spending in the next six months. Of those that were increasing their capital spending, 44% were creating investments that would translate into job creation and help bolster the view of an economic recovery, but the rest of their money went toward maintenance.

Many small business owners believe they will experience lower sales over the next six months (see: Consumer Spending Broken). This is not a vote of confidence on any possible economic recovery here in the U.S. for 2012.

These latest figures on U.S. small business are not encouraging for those expecting an economic recovery. To me, it paints a picture of more difficult times ahead. The government chose to focus on big business after the 2008 credit crisis. It should have been focusing on small business.

Where the Market Stands; Where it’s Headed:

Remember what a great start to the year the stock market had? You may recall January 2012 was one of the best Januarys for stocks in years.

But it’s all wilting away now. The Dow Jones Industrial Average closed Friday up only 4.5% for 2012. At one point only a few short months ago, the Dow Jones Industrial Average was up nine percent on the year!

The stock market is waiting…waiting for the Federal Reserve to announce QE3. But given the market’s meager reaction to additional monetary stimulus announced by the ECB, Bank of England and Bank of China on Thursday and Friday of last week, I’m starting to wonder if more money printing in the U.S. will make a difference anymore.

That bear market rally that started in March of 2009? Getting closer to its end.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Back in January 2002, I personally started buying gold shares.” Michael Lombardi in Profit Confidential, December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.