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Thursday, December 06, 2012 11:11 PM

Small Business Owners' Hiring Intent Plunges to 2008 Lows; Don't Blame Sandy or Fiscal Cliff

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A Gallup random dial poll of 607 small businesses conducted November 12-16 2012 asked the question "Over the next 12 months, do you expect the overall number of job positions at your company to increase a lot, increase a little, stay the same, decrease a little, or decrease a lot?"

The net survey results show Small-Business Owners' Hiring Intentions Plunge.

U.S. small-business owners expect to add fewer net new jobs over the next 12 months than at any time since the depths of the 2008-2009 recession, according to this November's Wells Fargo/Gallup Small Business Index survey. Small-business owners' net hiring intentions for the next 12 months plunged to -4 in November, down from +10 in July and matching the previous record low recorded by the Wells Fargo/Small Business Index of -4 in November 2008.

Historically, net hiring intentions have tended to be very positive, with small-business owners expecting to grow and hire more new employees than they will let go over the next 12 months. In good economic years, net hiring intentions have been in the double-digits. This has not been the case since the recession and financial crisis in 2008-2009 with net hiring intentions reaching a low of -4 in November 2008. There was considerable improvement in small-business owners' hiring expectations during much of 2012, prior to the recent November plunge, but now expectations have deteriorated to tie the low recorded in 2008.

In November, 21% of owners say they expect to decrease jobs at their companies over the next 12 months, the most recorded on this measure since the inception of the Wells Fargo/Gallup Small Business Index in August 2003. At the same time, 17% of small-business owners say they expect to increase the number of jobs or positions at their companies, down from 20% in July of this year and the lowest level measured since November 2011.

Owners' Net Hiring Down Over Past 12 Months

In addition to asking about future hiring intentions, the survey also asks small-business owners to report on hiring over the past 12 months. In November, more small-business owners reported decreasing the number of employees (26%) than increasing (14%), resulting in a net hiring score of -12. That is down from -7 in July and -9 in the prior three quarterly measurements. Net hiring over the past 12 months is about where it was in July 2011, at -11. This lack of improvement in small-business owners' self-reported hiring helps explain why too few new jobs have been created during much of 2012 to significantly lower the U.S. unemployment rate.


That net hiring expectations at the nation's small businesses have declined to levels last seen in late 2008 is reason for concern. Such low net hiring expectations were followed by massive layoffs in early 2009. While a repeat of that experience seems unlikely in 2013, there is the potential for a serious decline in jobs early next year if small-business owners' hiring intentions do not improve.

Whether the pessimism of the nation's small-business owners is due to the fiscal cliff, Superstorm Sandy, the election, or some combination of these factors, the U.S. economy remains weak and unemployment remains high from a historical perspective. A further sharp increase in small-business layoffs, resulting in higher unemployment on top of the current economic conditions, could turn today's slow growing U.S. economy into something worse.
Not Sandy, Not Fiscal Cliff

It is difficult to blame this on the fiscal cliff, and even more difficult to pin this on Sandy. More than likely, the poor net result is primarily the result of a clear slowdown in the economy (lack of customers).

I believe the US is back in recession and so does the ECRI.

On top of deteriorating economic conditions, also factor in the election and Obamacare.

Obamacare Discussion

No Election Relief

I suspect a majority of small business owners are Republican, and most Republicans seemed to believe Romney would win. Certainly any businesses expecting election relief from Obamacare were mistaken.

It would have been interesting if Gallup asked "why?" to those who intended to hire less.

Regardless of "why?" it makes perfect sense for businesses to cut back if the economy is slowing, and indeed it is.

Manufacturing leads the way (see ISM Manufacturing in Contraction; Expect Conditions to Worsen), and services will follow sooner rather than later.

Mike "Mish" Shedlock

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