Green Room

“Stop stimulating us!”

posted at 9:36 am on February 10, 2010 by

Washington still does not get it. It pays lip service to the fact that small business generates half of private sector GDP and creates over two-thirds of private sector net new jobs, but when it comes time to provide help, small business gets $30 billion IF banks decide to accept the TARP funds to support loans and IF the owners can subsequently get a loan from a bank. But for most firms, this dinky amount is of little help. More so, this new aid misses the main problem since only five percent of small business owners cite “financing” as their top business problem but 31 percent cite “poor sales.”

This from the National Federation of Independent Businesses. Add to it the overhanging burden of health care reform and a minimum wage increase and small business owners are quite nervous … about getting more stimulus.

The National Bureau of Economic Research is expected to declare a recession bottom in the second half of 2009. Manufacturing turned in the third quarter, employment managed a positive month in the fourth, both determinants of the turning point. The NFIB indicators do not appear to agree however. At the end of the 1982 recession (Q4, 1982), the Index value was 98, the percent of owners viewing that period as a good time to expand was nine percent and the net percent expecting better business conditions was 47 percent. The January Index value is 89.3, the percent of owners viewing the current period as a good time to expand is five percent and only a net one percent expect better business conditions in the first half, not really strong signs of a turn in the economy. The decline in the unemployment rate reflects a reduced number of individuals looking for a job and is more consistent with the NFIB forecast which did not anticipate a continued rise in the unemployment rate above 10 percent. The loss of a lock on 60 Senate votes for the Democrats may be encouraging to some owners, but the President and Congressional leaders still sound like they plan to press on with their agenda, not good news for small business owners.

Bruce Yandle does it shorter:

Imagine yourself as owner of a small business with 20 employees. You are trying to decide if you should build up inventories again, hire one or two people, and lease another pickup truck. Would you make your decision on the basis of the fourth quarter GDP numbers? Would you base your plans on the explosion of existing home sales that followed the first-home-buyer stimulus? Most likely not. I’ll bet you would wait so that you could get a better fix on the real economy.

Perhaps we need six months of political silence.

When I teach cost-benefit analysis one of the factors we discuss is the value of the option of waiting. Waiting for more information, waiting for a reduction in finance uncertainty, waiting for a reduction in policy uncertainty. Yet we have financial reform hanging up in the Senate — bipartisanship or ram it through? Policy makers occasionally say they are moving forward with health care, then they want a summit. If you ran a business and I was your silent partner, my silence would be tough to maintain if you started an expansion right now. And there’s no sign of a pickup in the hiring rate…

It is interesting that the NFIB is arguing that credit conditions are not a big problem for small businesses. Yesterday William Dudley, president of the New York Fed, said in a speech in Australia that “many smaller and medium-sized banks remain under significant pressure” because they could not diversify away from commercial real estate like their bigger cousins. “Loan losses in commercial real estate and consumer and mortgage loans seem likely to continue to pressure smaller banks for some time to come. This in turn means that credit availability to households and small businesses will still be curtailed.” This is going to be an issue to watch going forward — the Fed may be pushing out too much credit thinking there’s a shortage of funds where one does not exist. The Obama administration’s emphasis on community bank lending is also gearing up with more credit, towards dubious ends if you believe that NFIB report.

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The Obsession with health care is driving all small business owners nuts. The unionization of every aspect of business is also making us less inclined to move. We could move the economy forward if government would get the hell out of the way and stop trying to tax us to death. Period

elclynn on February 10, 2010 at 9:52 AM

Groucho Barack Hussein Obamarx h/t Moonbattery

The last man nearly ruined this place
He didn’t know what to do with it
If you think this country’s bad off now
Just wait ’til I get through with it
The country’s taxes must be fixed
And I know what to do with it
If you think you’re paying too much now
Just wait ’til I get through with it…

gordo on February 10, 2010 at 10:04 AM

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