Thursday, September 10, 2015

Conflicting Economic Data Muddies the Water for the American Small Businesses by Ira Riklis

This post is by Ira Riklis as he writes about American small business optimism that seems to be holding steady and the substantial challenges that will face business owners this upcoming quarter.

The Great Debate

There is great debate, including conflicting information about the state of small businesses in America right now. Changes in tax and health care policies coupled with the recent stock market crash create a precarious position for small business ventures. Sorting through the data, surveys and varying opinions leaves most Americans, even economists, with a murky understanding of how small businesses are actually faring.

In March, 2015, David Burton, Senior Fellow in Economic Policy at The Heritage Foundation testified before The Committee on Small Business that small business exits are exceeding new business formations. He cited eight primary reasons why small businesses are currently faltering in American:
  • Poor Tax Policy
  • Inadequate Access to Capital
  • Expensive Health Care
  • Burdensome Energy and Environmental Laws
  • High and Growing Regulatory Costs
  • Onerous Labor and Employment Laws
  • Bad Immigration Rules
  • Costly Legal System
The testimony continued with 97 specific recommendations that will serve to remove barriers to small business entry and economic growth.


Removing Small Business Barriers


The National Federation of Independent Businesses is optimistic about the future of the American small business and recent reporting suggests that small business owners are, as well. Their Small Business Optimism Index indicated a half a point growth last month, raising the index to 95.9. The index measures confidence reported by small businesses and not actual financial data. The following components are measured by the survey:
  • Plans to Increase Employment
  • Plans to Make Capital Outlays
  • Plans to Increase Inventories
  • Expect Economy to Improve
  • Expect Real Sales Higher
  • Current Inventory
  • Current Job Openings
  • Expected Credit Conditions
  • Now a Good Time to Expand
  • Earnings Trend
The survey determined that small business owners communicated mild optimism regarding sales, but U.S. Department of Labor reported that non-farm payrolls increased 173,000 in August, which is the smallest gain in five months.
did not believe it was a good time to expand operations. Small business owners reported being
pessimistic about business conditions over the next six months and were unwilling to comment with detail regarding capital and inventory investment in upcoming months. The survey responses also indicate some inflation pressures. Fourteen percent of small business owners reduced their average selling prices in the past three months, which was a one point increase from July. The


Overall Outlook 


Overall, NFIB is reporting that small business outlook is remaining positive. It should be noted that the interviews were conducted prior to the recent stock market slide.

It can be agreed upon that entrepreneurs face a large degree of uncertainty given the dynamism of the current economy. Entrepreneurship is important to future technological innovation and net job creation. The future of small business is imperative to stability and growth of the US economy.

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