The economy as a whole may have emerged from the recession in the summer of 2009, but for small businesses, the downturn is now entering its thirty-sixth month. Weak sales remain the top problem, according to the National Federation of Independent Business (NFIB). Until that changes, hiring and spending on capital projects will remain stagnant.
"The hope for a pickup in the small business sector did not materialize, but new weaknesses did not appear either," said NFIB Chief Economist William C. Dunkelberg, commenting on the organization's latest survey of small business members. "Overall, owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects."
The problem can be summed up in a word: jobs, or the lack thereof. Until the economy starts putting people back to work, small businesses will remain hunkered down, neither spending nor hiring. The issue is critical because small businesses have traditionally produced the lion's share of new jobs and have led the economy back to health in every previous recession.
But it's not happening this time. Although the economy has been adding jobs for the past 12 months, the rate of growth doesn't even cover the number of new people entering the job market, let alone the millions of Americans who have been thrown out of work.
The economy logged another month of job gains in December, according to the latest Department of Labor figures, which President Obama praised this week. But a new analysis by the Economic Policy Institute, a Washington-based think tank, found that the numbers don't reflect the true nature or depth of the problem.
Though the seasonally adjusted unemployment rate dropped to 9.4 percent from 9.8 percent in December, half of the improvement occurred because 260,000 people stopped looking for a job. When that happens they are no longer counted in the statistics. In fact, the labor force participation rate, 64.3 percent, is at its lowest level since the recession began.
"Incredibly, the U.S. labor force is now smaller than it was before the recession started, though it should have grown by over 4 million workers to keep up with working-age population growth over this period," the analysis noted. "The bad news is that -- three full years after the recession officially began -- the U.S. is still near the bottom of a deep crater."
How deep?
The institute estimates that about 4.4 million workers make up this invisible army of unemployed dropouts. If just half of them were counted as "officially" unemployed, the real jobless rate would be 10.7 percent.
But the problem doesn't end there; it also extends to those who are working. The Labor Department figures don't reflect the underemployment rate, made up of millions of people who want full-time jobs but have had to settle for part-time jobs with less pay.
Although those numbers declined slightly in December as well, the underemployment rate is 16.7 percent. And that doesn't include the legions of workers who are underemployed because they have taken jobs that are below their skills, training, or experience level, according to the analysis.
When all those factors are taken together, more than 26.1 million workers are either unemployed or underemployed. Of those, 6.4 million workers have been unemployed for longer than six months. While the numbers seem staggering, the task of digging out of the economic crater is equally formidable.
The economy is still 7.2 million payroll jobs short of where it was at the start of the recession three years ago. In addition, the economy would need to add 3.7 million jobs just to cover those who entered the workforce for the first time since then. "This means the labor market is now nearly 11 million jobs below the level needed to restore the pre-recession unemployment rate" in December 2007, which was 5.0 percent, according to the analysis.
Indeed, we remain near the bottom of a very large crater. But what's worse, our capacity to dig our way out is also hampered, because real wages and hours worked are essentially stagnant. The average work week held steady in December at 34.2 hours, barely higher than the recession's low point of 33.7 hours in October 2009. Meanwhile, wages are growing at only a 1.8 percent annualized rate. The meager growth of paychecks has all but taken consumers out of the equation as a "driving factor of the recovery," the analysis states.
To get back to the December 2007 unemployment rate, the economy would need to add 300,000 jobs every month for the next five years. Obviously, the 103,000 jobs added in December pales by comparison. Looking forward, the picture isn't much brighter.
In November there were 4.6 workers for every job opening advertised, according to a separate report by the U.S. Bureau of Labor Statistics. That's an improvement from the depth of the recession, when the ratio was 6.3-to-1 in July 2009, but still well above the 2007 average of 1.5 workers for every job. In short, no jobs exist for three out of four unemployed workers. And if the underemployed and dropouts are added, the ratio swells to 7.4 workers for every job.
As things now stand, the economy is unlikely to grow its way out of this hole on its own. The World Bank estimates that the U.S. economy will grow 2.8 percent in 2011, compared with a mean forecast for 2.7 percent growth by economists polled by Reuters. That's "too soft" to put a meaningful dent in the jobless rate, the bank concludes. On the high side, the U.S. Chamber estimates that the economy will expand by 3.2 percent and add 2.4 million jobs. Either way, it's not enough.
So the question becomes, What needs to happen to get the economy going? The Small Business Jobs Act, signed into law by President Obama in September, contains $12 billion in tax breaks for businesses, but no direct incentives for hiring. The administration is counting on stimulating capital investments and certain other actions to spur businesses to create new jobs. But given the size of the problem, that's not nearly enough.
If the nation ever hopes to dig its way out of the job crater, lawmakers need to get far more serious about creating jobs, to the point of creating a Roosevelt-era public jobs program. And they need to devote far more resources to small and startup businesses. Otherwise, the economy will remain in a deep crater for years to come, creating a lost generation of young people and an increasingly impoverished older generation.
