US: Don’t Blame Small Business For Jobless Growth

US: Don’t Blame Small Business For Jobless US Growth

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• Focus on tight credit conditions facing small business as a drag on hiring is not supported by the data

• The BED survey shows recent job cuts more concentrated in large firms
• NFIB and SLOOS surveys do not indicate tightness in credit is concentrated in small business

• Relative weakness in the NFIB small business survey is likely due to sectoral composition of respondents

Real GDP growth through 2H09 averaged roughly 4%, but with January data in hand this is still a jobless recovery. Both economists and policymakers are focused on the lack of hiring and what can be done about it. One prominent strand of thinking relates to the small business sector. Economic problems are often viewed as rooted in financial problems that hit crisis proportions in late 2008 and early 2009. Capital markets have since opened up for large, well-known businesses. But credit conditions are still viewed as tight for small and medium-sized businesses that are more dependent on bank loans. Fed officials have emphasized the link between severe problems in nonresidential real estate, growing problem loans held by local and regional banks that account for a large share of financing for nonresidential real estate, and likely further tightening of credit to small business customers of these local and regional banks.

There is very limited information available on small business activity. But the data that are available do not support the view that small business credit problems lie behind the jobless recovery.

ENDS

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