Unemployment Hits Small Businesses

For small business owners, January started off as badly as December ended. The National Federation of Independent Business Index of Small Business Optimism fell 1.1 points to 84.1 (1986=100), the second-lowest reading in the 35-year history of the survey.

The failure of the index to rebound from historic low readings indicates that the recession will encompass the first quarter, with little chance for a bottom before the second quarter.

Owners are reducing employment in record numbers. They reported in January the second largest monthly decline in survey history (December was the largest). Eight percent of owners increased employment, but 23 percent reduced employment.

Eleven percent reported unfilled job openings, down three points from December (the 34-year average is 22 percent), indicating a substantial increase in the unemployment rate (between 7.5 percent and 8 percent) in the next few months.

Over the next three months, 9 percent plan to create new jobs (up 1 point), and 14 percent plan workforce reductions (down 5 points), yielding a seasonally adjusted net-negative 6 percent of owners planning to create new jobs, the third-lowest reading in survey history and unchanged from December. Lower readings occurred only in the 1974–5 and the 1980–82 recessions.