If there was ever something that the current administration should be paying attention to, and more importantly talking to, when considering another jobs plan is the small business owner. It doesn’t take a lot to realize if they aren’t confident about the economy in both the short and long term they are going to act defensively. This means less capital expenditures, cost cutting and less hiring. None of those are good for creating economic growth as without job creation there can’t be consumption and without consumption there is no aggregate demand on businesses causing them to hire. It is a vicious circle that is extremely difficult to break. If you throw money at small businesses in the form of tax cuts which are temporary in nature they will keep the cash which is why stimulus to this point has been a failure.
Confidence among small businesses fell for the sixth straight month, down 1.8 points in August to 88.1. The top problem is sales where more firms are currently in a downtrend than an uptrend which in turn is hurting earnings. Expectations for future sales are also in decline. Only five percent of the sample say it’s a good time to expand. However, there were slightly more firms planning to create new jobs over the next three months (up from 2% to 5% hardly more than a statistical sampling error) as well as a minimal increase in those reporting unfilled job openings.
Unfortunately the biggest plunge came in the area of the firms expecting the economy to improve. That outlook fell to the lowest level on record of a negative 26% reading. The weak outlook of the economy drives straight at the heart of the problems for this administration’s attempt to bolster employment with tax cuts and short term fixes. As stated temporary measures which drag forward future consumption won’t work during this cycle because small business struggling against excessive regulations, political infighting, excessive leverage and weak final demand. Until that outlook begins to change for the better, which will require the clearing of the debt induced overhang, it is unlikely that we will see much improvement in the jobs or economic picture.