Economists: Small business conditions improving, but obstacles remain

William Dunkelberg
William Dunkelberg
Wayne Best
Wayne Best

Phil Castle, The Business Times

While economic conditions are slowing improving for small businesses in the United States, obstacles continue to slow growth — among them government regulations and political uncertainty.

“Things are heading up for small businesses, but the pace is too slow,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business.

Dunkelberg and Wayne Best, head of business and economic insights for Visa, shared their insights during an event in Grand Junction billed as an economic “road show.” Their presentations were the first on what’s planned as a national tour.

Dunkelberg and Best were mostly upbeat in their assessments.

Said Best: “Key macro-economic indicators suggest that the economy is rebounding and a self-sustaining recovery is beginning. Spending growth in the U.S. economy is moderate so far — but is poised to accelerate in the coming months, driven by pent up consumer demand, broad-based job growth, income and wealth gains, improved access to credit and improving consumer confidence. This growth will be aided by the middle class, which represents a third of all spending.”

In an interview with the Business Times, Dunkelberg said a monthly index tracking optimism among small business owners has climbed to second-highest level since October 2007.

The NFIB Small Business Optimism Index, which Dunkelberg has helped calculate since 1974, climbed four-tenths of a point to 96.1 in August. The index is based on the results of monthly random surveys of members of the small business advocacy group, which includes 7,000 members in Colorado.

“We’re happy to see it moving forward,” Dunkelberg said, adding that he was especially encouraged by components of the index tracking job openings and plans to increase hiring and capital investments.

Manufacturers have fared especially well, Dunkelberg said, in meeting increased demand for exports. So have small businesses that are part of the manufacturing supply chain.

The constructions sector has improved as well, he said, although housing starts  and the construction work force remain far below pre-recession levels.

Given the trends, the odds of the United States economy returning to a recession anytime soon remain low, Dunkelberg said.

Still, the latest reading of the Small Business Optimism Index remains below the historical average of 100 for the index posted between 1973 and 2008, Dunkelberg said.

Moreover, the proportion of small business owners responding to the survey upon which the August index who expect worsening economic conditions still exceeded those anticipating improving conditions, he added.

Business owners remain uncertain about not only the economy, but also the potential effects of government policies and regulations and political leadership, he said.

And that’s discouraging owners from hiring additional workers, buying new equipment or building additional facilities, Dunkelberg said. “It’s keeping people from putting money on the table and expanding.”

The U.S. economy could be expanding much faster were it not for the drag from businesses that are individually small but collectively big, he said.

According to information from the U.S. Census Bureau, businesses with fewer than 10 employees account for nearly 80 percent of all employer firms in the country, Dunkelberg said. In Colorado, the U.S. Small Business Administration estimates that small businesses constitutes nearly

98 percent of all employers and employ almost half the private-sector work force.

So what do small businesses need to grow?

For starters, relief from what Dunkelberg described as a regulatory “avalanche.” Government regulations tend to not only impose disproportionally higher costs on small businesses, but also create uncertainty over their potential effects.

The ongoing stalemate between political parties in Congress and Congress and President Barack Obama fosters additional uncertainty among small business owners, he added. “They need to see a government that works.”

Finally, more confident consumers willing to spend more money would bolster sales for small businesses and encourage small business owners to expand, Dunkelberg said.

“We can create a lot of jobs in a hurry if we have a reason to create them,” he said.