Jul 28, 2011

Businesses Not Hiring, Jobless Claims Drop, Studies Show!

[caption id="attachment_393" align="alignright" width="340" caption="Confusing reports"]

[/caption] This article has been updated with new developments. According to recent studies or surveys, small-business owners don’t expect to hire more staff members in the coming months. But they added 88,000 jobs in June. But that didn’t affect the unemployment rate. But first-time jobless claims dropped significantly last week. Confusing, isn’t it? If economists and researchers were to agree on one thing, it might be that it’s hard to get a definitive snapshot of the economy. We turned to Karen Dynan, Robert S. Kerr Senior Fellow and vice president and co-director of the Economic Studies program at the Brookings Institution, for some insight. “The indicators we have for the economy as a whole suggest that hiring by private firms slowed noticeably this spring,” Dynan wrote in an email. “To some extent, the weakness reflect temporary factors: the hit to real income from higher gasoline prices and reduced manufacturing production related to supply-chain disruptions stemming from the Japanese earthquake.” Dynan wrote that those factors’ influence should decline, which could mean more growth and hiring later this year. “The decline in initial claims is consistent with the expected pickup,” she wrote. “It’s much harder to know what’s going on with small businesses because we don’t have great information about how employment gains break down by size of business. The indicators we have are noisy and impressionistic. Some indicators are volatile because of measurement error and technical factors. Surveys tell you about people’s intentions but intentions can be different from actions.” Dynan wrote that overall, “there are good reasons to think that small businesses have suffered more over the past few years than larger businesses and that they are facing more challenges now.” Some of those reasons are small businesses’ lack of collateral, difficulty obtaining credit, less financial support available from family and friends, and fewer exports, Dynan wrote. “Finally, I think there’s a good case to be made that all the uncertainty about the U.S. economy and economic policy is having a bigger toll on small-business hiring than large-business hiring,” she wrote. “With limited administrative and legal staffing, hiring mistakes may be more costly for them.”

The Studies

Last Friday, we mentioned two articles from The Wall Street Journal. One article highlighted a report that showed that business owners polled in late June were unlikely to hire. Another article, appearing on the WSJ “In Charge” blog, highlighted a report that showed payroll numbers increasing in June. We also asked small-business owners to weigh in on the hiring issue, among others, in our SB Authority Market Sentiment Survey for the month of July. Out of a sample size of approximately 1,100 respondents, 60.4 percent said they don’t plan to expand their businesses or hiring in the next year. A little earlier than that, The SB Authority Index jumped 1.18 points from May to June. Credit that boost to retail sales, U.S. Small Business Administration increased loan volumes, and the Russell Microcap Index. Plus, the ADP/Macroeconomic Advisers report showed that small-business owners added 88,000 jobs in June. Not only that, but total nonfarm private-sector employment was up by 157,000 jobs for that month, according to the ADP report. Nonetheless, those numbers didn’t do much for the June unemployment rate, which remained at about 9.2 percent, according to the Bureau of Labor Statistics. Today, Reuters reported that first-time jobless claims "hit a three-month low" last week.