In the recovery so far, small businesses have largely been left behind. Initially, loans were hard to come by and consumers weren't shopping. Now, small-business owners say, Washington is throwing up additional roadblocks.
In survey after survey, owners of small businesses report unbridled pessimism about the economy. The small-business optimism index from the National Federation of Independent Business — a major industry group for small businesses that surveys a sample of its members each month — is stuck at recessionary levels. In January's report, released this week, expectations for business conditions six months from now were at their fourth-lowest reading in nearly 40 years.
Comparable measures for large companies have exceeded their prerecession levels. That is partly because big companies have a larger global footprint, so they are benefiting from strong growth in places like China and India. Small businesses are more closely tied to the leaden domestic economy, said Paul Ballew, chief analytic and data officer at Dun & Bradstreet, so weak growth at home is weighing more heavily on them.
That gulf in optimism between small and large companies seems to widen, though, during occasions of greater policy uncertainty and Washington gridlock — including the present. And while small businesses always grumble about taxes and regulation, they are especially likely to do so now. Asked by the National Federation of Independent Business about their "single most important problem," small-business owners are now as likely to name taxes or government requirements as they are to name sales, which had reigned supreme from September 2008 until mid-2012.
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"Politicians are uniformly quick to offer paeans to small businesses, but their actions have directly held back the sector, to the huge detriment of the economy," said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors. "The timing of this latest slump is particularly frustrating because the key precondition for a real small-business recovery — the normalization of bank lending to commercial and industrial companies — is within reach."
It is unclear why policy and economic uncertainty would be taking a greater toll on small versus large businesses.
Smaller companies might have be more alarmed by headlines about the debt ceiling and fiscal tightening because they don't have armies of in-house analysts to advise them about relative risks, said Nicholas Bloom, an economics professor at Stanford who maintains an index on policy uncertainty.
Smaller businesses are also more fixated on domestic uncertainty because they are less diversified than big firms — both geographically and in terms of product lines — and so have smaller margins for error. The last several years have offered multiple false starts in the domestic economy (remember "Recovery Summer" in 2010?), and small businesses that acted on any sense of optimism often found themselves badly burned.
Ralph Jensen, president of Pro Data IV, a nine-person accounting and bookkeeping firm in Green Bay, Wis., has watched and learned. He would like to open another office in Appleton, about 30 miles south, and hire a new employee. But he is concerned about how another blowup in Washington, or at the very least lingering uncertainty about tax increases and spending cuts, might affect his clients' expansion plans.