Pessimism continues to grow among the nation’s small businesses owners, who historically have played a key role in driving innovation and creating new jobs.
For three months running, the National Federation of Independent Businesses has seen a drop in the Small Business Optimism Index, which has settled at a Recession-level reading of 90.9 in May. Optimism is weighed down by a stubborn weakness in consumer spending, especially in the service sector, the domain of small businesses.
Businesses on Main Street are scraping by while corporate profits reach record highs, said Bill Dunkelberg, NFIB chief economist. One-in-four businesses owners surveyed by the NFIB say that weak sales are their biggest problem, followed by taxes and regulations and red tape. The growing national debt, the threat of higher taxes and uncertainty surrounding the new health care law are also key worries.
Small business owners are growing less likely to hire and expand with a 1 percent drop from April to May in those planning to create new jobs. Only 5 percent of small business owners view the current period as a good time to expand. The percentage of owners who expect conditions to improve in the next five months dropped to negative 5 percent – 15 percentage points lower than January.
Historically, small businesses play an important role as incubators for innovative ideas and create two of every three new jobs in the economy. Instead of leading the country out of the Recession, small business owners are slow to participate in the recovery.
Small businesses have also traditionally provided a means to achieve the American Dream. Business owners account for more wealthy Americans than any other occupation. Our research shows that they make up the largest percentage – 29 percent - of Americans with a net worth of more than $25 million.
Federal tax breaks to encourage small businesses to hire and expand have helped not small businesses because owners are not in a position to grow, said Dunkelberg.
“Washington is throwing misdirected policies at the problem, offering tax breaks for hiring and equipment investment, but acting surprised when they don’t bear any fruit,” Dunkelberg said. “The failure to understand why small-business owners are not hiring or investing has resulted in a set of policies that have not been very effective, and Main Street is suffering.”