Small Matters: Businesses hamstrung by uncertainties

Posted: August 01, 2011

Thinking about the last few months, it is hard to recall any news that would make a small-business owner more confident and optimistic about the future.

Failing to raise the debt ceiling would, in the near future, force the federal government to not pay bills of $300 billion or more in this fiscal year. That's a lot of income and spending. Interest rates would likely rise, and no one knows how equity markets would respond. Will Philadelphia look like Athens, with riots and property destruction?

Other uncertainties:

Treasury Secretary Timothy Geithner told Congress that small business would have to pay more taxes or the government would have to cut spending (he suggested education cuts). How much more? Who knows?

It would be useful for business owners to know what their tax rates would be over the next few years. The administration has not produced a budget, so how do we know where we are going?

Then there is health care. Will the health-care legislation be declared unconstitutional? What will the government require as the "minimum adequate coverage" that employers must provide? How much will that add to employee costs?

City Council keeps passing legislation that will raise operating costs. What, if any of it, will become law and what will that cost?

Consumer sentiment has been in the tank all year, and consumer spending correspondingly weak. Customers are the lifeblood of small businesses, and they are not spending much on anything. As bad as economic growth was in the first quarter, it was worse (a paltry 1.3 percent) in the second quarter.

The list goes on.

The National Federation of Independent Business (NFIB) has collected data from its 350,000 members for more than 35 years. The findings indicate that the recovery from this past recession is the most anemic on record (data were first available in 1973). The Index of Small Business Optimism is around 90, and we're two years into the "recovery." At the same point in the recovery from the 1982 recession, the index was 12 points higher and had been as high as 107. The highest reading in this recovery has been 93.

The percentage of owners reporting spending on capital equipment and expansion is at the lowest level in survey history (50 percent) and only 20 percent plan outlays in the coming months, just a few points above the record low. Why expand if there is no prospect of growing sales?

And that seems to be the problem. While 16 percent of owners expect business conditions to be better in six months, 28 percent think conditions will worsen. Six percent view the current period as a good time to expand, 69 percent say it is not. While 33 percent expect their real sales volumes to improve, 26 percent expect a decline. These are a very weak set of statistics, especially for a recovery period.

So what to do? Times like these remind us that as carefully as we manage our internal operations, most of what determines our success is beyond our control. Natural disasters, politics, decisions by other firms all affect costs and sales in ways we cannot anticipate.

Right now, the political risks are very large. It would be nice, for example, to have some idea about tax rates. Business owners plan for longer periods of time than just one year. How might labor costs be changed by health care? It is hard to plan and make financial commitments when so much of what shapes the economic environment is up in the air.

When so many business owners are stalled as they await clarity, it slows job creation and economic growth. Some of this uncertainty must be resolved soon. That would help move us forward.

Bill Dunkelberg is a professor of economics at Temple University and a nationally recognized expert on small business. Contact him at www.dunk@edu. Read more of his columns at


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