Small Business Economic Recovery Begins But Remains Sluggish

“Manufacturing and exporting are leading the recovery—industries and activities that are not labor intensive—while construction, an industry historically dominated by small firms, remains depressed,” said NFIB chief economist Bill Dunkelberg. “While recent political rhetoric favors small business, it is belied by the actions of policy makers whose new policies and activities almost exclusively support big businesses. While the economy is moving forward, albeit at a snail’s pace, it is not nearly fast enough to dramatically improve the unemployment situation, which continues to languish.”

The sluggishness in hiring by all companies following the most recent recession is dramatically shown in this chart from the Calculated Risk blog:

The current loss in jobs has been deeper and lasted longer than we have seen in any recession since the end of World War II. The trend line suggests that it will be years until we get back to an unemployment level of 5%, which is generally considered to be acceptable.

Another indication of the employment challenges we face going forward can be seen in the recent employment data and summarized by Charlie Cook in the National Journal Daily:

“While the unemployment rate fell to 9.0% (the best since April 2009 and the second consecutive month of declines in the rate, which went from 9.8 percent in November to 9.4 in December), only 36,000 new jobs were created, the lowest level in four months and nowhere near the 150,000 to 200,000 generally considered necessary to keep up with population growth and chip away at chronic unemployment.”

Despite the economic challenges that remain, Comscore data show that in the online world small-to-mid size smaller retailers have begun to slowly regain some of the e-commerce market share they lost to their larger rivals during a period when the 25 largest retailers were able to leverage their greater financial resources and be more aggressive in terms of price reductions and deals:

As can be seen in the above table, while small-to-mid size retailers have lost 5.6 share points over the past twelve months, if we look at the most recent two quarters (i.e. Q3 to Q4 2010), their share has increased by 1.5 percentage points. I believe this improvement is the result of two factors that became clear during the 2010 holiday shopping season: (1) more retailers finally being able to step up their promotional efforts and offering more aggressive deals (e.g. free shipping, which increased dramatically in importance during the past holiday shopping season) and (2) increased spending in the online channel by all consumer income segments, with a larger number of retailers benefiting from this positive trend.

Looking forward, e-commerce should continue to gain an increasing share of consumers’ spending. The convenience and savings from shopping online are simply too attractive to resist. As this trend continues, it is to be hoped that all retailers – large and small -- will continue to see an improvement in their sales and that this will increase both their business confidence and their need to hire additional employees. The U.S. employment situation clearly needs all the help it can get.