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Friday, August 20, 2010 2:41 AM


Small Businesses are Not Hiring - Why Should They?


In response to Creating Jobs Carries a Punishing Price, an article about Mr. Fleischer, president of Bogen Communications Inc. and why he is not hiring, I received an interesting email from "David" a reader who disagrees with Mr. Fleischer's stated reasons for not hiring.

One of the items mentioned by Mr. Fleischer and challenged by "David" is the idea that corporations are sitting on cash. On this score, "David" is correct. I have also debunked the idea that corporations are sitting in cash (Please see Are Corporations Sitting on Piles of Cash?)

"David" also challenged Mr. Fleischer's math on healthcare.

However, such arguments miss the entire point of the post.

Actions Matter!

It does not matter one iota if Mr. Fleischer is wrong about corporate sideline cash or anything else. What matters is Mr. Fleischer thinks he has sufficient reasons not to hire.

On that score, I believe Mr. Fleischer is correct. There are numerous good reasons to not hire.

Businesses have a legitimate worry about health care costs, rising taxes, and other artifacts of Obama's legislation.

On the consumer side, this is not a typical recession. This is a credit bust recession with consumers still deleveraging. With savings deposits yielding close to 0% and with credit card rates over 20%, common sense dictates consumers pay down bills rather than make new purchases. The housing bubble has burst and boomers are headed into retirement with insufficient savings.

Given all the economic uncertainties, consumers are reacting in a rational manner by not spending. In turn, businesses have consistently cited lack of customers as one reason to not hire.

Pertinent Facts

That Mr. Fleischer fails to articulate reasons that others agree with is irrelevant. The pertinent fact is he is not hiring.

More importantly, numerous other small business owners think and act just like Mr. Fleischer. How do we know? Simple ...


What Can Be Done?

For my thoughts on what to do about small business hiring, please consider Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Here are a couple if interesting charts regarding small business employment from the NFIB Small Business Trends report for August 2010.

30 Consecutive Months of Net Small Business Firings



Note: the above chart represents the net number of businesses hiring vs. firing. It is highly probable actual employment rose in some of those months.

Hiring Plans



The net number of firms planning to hire is barely treading water. Actual hiring is another matter.

Regardless of reasoning, small businesses are not hiring now and have no plans to hire in the next three months.

The logical conclusion is economic conditions are highly likely to deteriorate. One would never know that from overoptimistic economic estimates. Please see 58 out of 58 Economists Overoptimistic on Philly Fed Manufacturing Estimate; Median Forecast +7 Actual Result -7.7, a "Veritable Disaster" for details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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