Few small businesses planning to hire soon

By Jim Hopkins
USA Today

Small businesses, the engine of U.S. job creation, are retreating on hiring plans — magnifying the jobless recovery.

The share planning to hire fell to 13 percent last month in a survey of 567 small firms out Friday. That was down from 17 percent in January, the National Federation of Independent Business trade group said.

Even the weak hiring plans may be too rosy. For most of the past year, small firms failed to add employees despite earlier plans, NFIB data show.

The trend is significant because small companies create most jobs. The United States' 5.8 million small employers have nearly half of all workers. Their reluctance to boost employment partly explains dismal payroll figures released Friday by the Labor Department. Nonfarm business payrolls grew by just 21,000 jobs in February — well below the 125,000 that economists had expected. The 5.6 percent jobless rate was unchanged.

Some economists say the small-business hiring trend may not be as bad as it looks. William Dunkelberg, NFIB's chief economist, says hiring plans, while down, mirror those in the 1980s recovery. "That was a great job-generating expansion," he says.

Moreover, the Labor Department may not be capturing a key source of postrecession job gains: newly self-employed workers who aren't counted in the agency's monthly surveys. The number of these tiny startups is growing, says Mark Zandi, of consultant Economy.com. They include David Wells, 37. He began a one-man Chicago tech consulting firm in December following fruitless job hunting after getting laid off by a big tech firm that went bust. In San Diego, Brian Jones, 28, started selling lamps over the Internet and through eBay in April after quitting the Navy. He turned down job offers that would have forced his family to move. His business, Red Rider Leg Lamps, is profitable.

Still, many other small businesses aren't hiring because of:

• Weak revenue. Until they see more dependable sales growth, many are forced to rely on productivity gains from existing workers, says Sung Won Sohn, Wells Fargo's chief economist. Near Portland, Maine, Verdia is selling more skin-care products through its Web site. That reduces labor costs, says founder Ryan Goan. Verdia has four workers.

• Higher overhead. Rising employee health-insurance costs are sapping companies. Near Grand Rapids, Mich., Sligh Furniture's health costs rose more than 10 percent this year after a similar double-digit jump last year. Sligh makes tables and other wood furniture. Like many Midwest factories, it has slashed employment — to 150 workers from 400 in 1999, the last year it added employees.