Recovery Eludes Small Business

The Business Cycle Dating Committee of the National Bureau of Economic Research determined that the present recession began in December 2007, more precisely; the last economic expansion reached its peak in December 2007. Please note that the committee did not report the expansion had peaked until almost one year after the peak. The committee only works from actual indicators and as such have not yet dated the end of the recession. Even if we were to assume that we hit bottom a year ago, this recession would be twice the length of the average post WWII recessions.

Normally during and after economic slumps you will see an increase in the rates of self-employment, as tight labor markets lead fired workers to venture out on their own. Bloomberg Businessweek ran a story dated September 3, 2010 which shows that the actual number of self-employed persons has dropped. There were 8.68 million people working for themselves in August 2010, the fewest since January 2002, according to Labor Department data released in September. That’s down 13 percent from a record 9.98 million reached in December 2006, 12 months before the latest recession began.

So WHY? Banks say that there is a lack of demand for commercial loans, yet there are fewer people working for themselves. Some economists blame the drop in self-employment on lack of bank financing. While others think what we may be seeing is the result of self-employed businesses failing.

Whatever the answer is, these are very unusual economic times. I heard an economist from the Federal Reserve yesterday and he referred to this as a time of Unusual Uncertainty. It’s difficult in uncertain times to look to the future and step out in faith to start a business. I wonder how long the uncertainty will last and how many businesses will not be around because they ran out of cash.


© Strategic Financial Leadership, Inc. 2010