Why Small Business Hiring is on Hold

During the economic recovery, small businesses have accounted for the majority of new jobs in the US economy. However, small businesses are not an island unto themselves. The most successful small businesses are able to create jobs because they are part of corporate supply chains.  However, if corporations are not investing they will not  hire small business as suppliers.  As a result, employment will suffer. This is what is happening today.

Fewer jobs are being created today because corporations  are hesitant to invest until after the November election is over. They are waiting to invest despite the fact that over the last several quarters they have earned record profits and have large amounts of liquidity. Nevertheless, until the uncertainty in the political and economic landscape has been resolved, corporations will continue to hold back on investing.

This can best be illustrated by looking at the behavior of business six investment over the last year. During the third quarter of 2011 business investment increased in 19.0%. during the fourth quarter of 2011 it declined to 9.5%;in the first quarter of 2012 business fixed investment was 7.5%. Finally, than the second quarter of 2012 fixed investment was 4.2%.if large corporations are not investing, small companies will suffer because there will be fewer supply chain opportunities.

Finally, consider the following; in May of 2012, the monthly ADP Employment Report showed that 132,000 new private-sector jobs were created.  Of that number, 51% were created by firms with fewer than 49 workers and 42% were created in  firms with 50 to 499 workers. Generally, firms with fewer than 500 workers are considered to be small businesses.

In contrast to the job creation of small businesses, only 9,000 jobs (or 7%) were created in firms with 500 or more workers, i.e. large corporations.

The conclusion is clear, we need small businesses to hire in order for more jobs to be created. The small businesses cannot do their part until a large corporations are more willing to invest. Unfortunately, that is not likely to happen until after the November elections and after the fiscal cliff (i.e. the suspension of tax and spending policies   put in place to stimulate the economy) has been addressed.