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'Slow Crawl' to Prosperity as Small Business Hiring 'Dives'

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With focus now on Friday's government jobs report, Main Street is largely wondering: Where's the recovery?

While actual job creation among small-business owners is inching up ever so slightly, longer-term hiring plans are taking a "dive," according to the National Federation of Independent Business. "It seems that the stamina for growth is waning, even with decent reports on consumer spending at the macro level," the group's chief economist, William Dunkelberg, said in a statement.

"Small businesses need a shot in the arm; but seeing as this is unlikely, the slow crawl to eventual prosperity might be the best we can hope for," he said.

Turns out what's happening in the broader U.S. economy—a wobbly employment picture—is playing out among mom and pops. Private sector job creation was considerably less than forecast for March. That report was released jointly by ADP and Moody's Analytics on Wednesday. The report serves as a preview to Friday's nonfarm payrolls report.

(Read More: Work Slowdown? ADP Says Job Creation Slowing)

To be clear, job creation among small-business owners is drifting positive, Dunkelberg said this week. The owners reported raising employment an average of 0.19 workers per firm for March—the best reading in a year, and the fourth consecutive month of small business job growth.

In fact, much of the private sector job creation last month came from small businesses of fewer than 50 employees, which added 74,000 positions, according to the ADP report.

Speed Bumps Ahead

But those hiring gains aren't exactly a barn burner. Plans to create small-business jobs tumbled in March, falling 4 points to a net zero percent of small employers, who plan to increase total employment, according to the NFIB's survey for March.

(Read More: Weekly Jobless Claims Get Weaker as Outlook Dims)

Employment momentum on Main Street and the broader economy could be waning.

"I'm very optimistic about the economy, but I think the next six months are going to be pretty tricky, and we're going to see that in the job market," Moody's economist Mark Zandi said Wednesday on CNBC. "So I think we actually will see weaker jobs numbers in the next few months."

A factor in that jobs drag is mandatory federal spending cuts. "One reason is the sequester. I think that will start to kick in," Zandi said. "I think that will start to show up in jobs in the next few months. The other thing is health care." (Read More: Sequestration — CNBC Explains)

For employers, there has been a heavy cloud of uncertainty about anticipated spending cuts and costs associated with Obamacare that go into effect in 2014.

But unlike larger private sector businesses, smaller employers usually don't have buffers such as large cash reserves to ride out federal budget cuts. Most smaller firms also can't quickly pivot their business strategies to ride out a rough patch. So their strategy has largely been staying in a holding pattern—including hiring decisions.

(Read More: Budget Cuts to Hit Main Street, but Sky Won't Fall)

Fred Deluca, the founder of privately held Subway Restaurants, said the government is simply out of touch with small-business owners. Policies including Obamacare discourage entrepreneurship and the American dream of owning your own business, Deluca told CNBC's "Squawk on the Street" in February.

"It's continuously gotten worse because there's more and more regulation. And it's tough for people to get into business, especially small business," he said. "If I started Subway today, Subway would not exist."

(Read More: Subway 'Wouldn't Exist' If Started Today Due to Regulations: Founder Deluca)

'Little Reason to Hire'

While Main Street has remained under pressure, corporate profits broadly have been rising, and the stock market has reached new highs—making some small-business owners feel even more isolated.

"Once again, our bifurcated economy may have large firms doing well but the Main Street owners not sharing in the gains and finding little reason to take on new employees. Owners are still pessimistic and see little reason to hire," NFIB's Dunkelberg said.

In a separate Labor Department report Thursday on weekly jobless claims, Americans filing new claims for unemployment benefits rose to its highest level in four months last week, again suggesting the labor market recovery lost some steam in March. (Read More: Weekly Jobless Claims Get Weaker as Outlook Dims)

America's Long-Term Unemployed

"For millions of America's workers, the economic recovery remains more theoretical than real," Christine Owens, executive director of the National Employment Law Project, said in a statement.

An unprecedented 4 in 10 jobless workers—nearly 5 million people—have been out of work for 27 weeks—nearly six months—or longer, pushing the average duration of unemployment up to 37 weeks, nearly 16 weeks longer than during the worst of the 1980s downturn, according to the law project's data.

Bottom line: As the recovery tries to gain traction, there may be only modest support from new Main Street jobs—a traditional driver of past recoveries.

(Read More: Little Main St. Hiring, Despite Uptick in Optimism)

By CNBC's Heesun Wee; Follow her on Twitter @heesunwee

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