Someone strictly following the news headlines might have the impression that businesses (Corporate America) have benefitted the most from this current recovery. The news has told the story of how Corporate America has been able to restructure their balance sheets by taking advantage of the low interest rates and refinancing their debt. Much has been made about how corporate balance sheets are now in some of the best financial shape in history. Corporate profits are near record highs as corporations have focused on efficiency and utilizing technology to do more with less.
This is clearly good news for those corporations that have been able to participate in this process. Some corporations might even argue that the news is too good since many in Congress now view Corporate America as the place for more tax revenue and more regulations. What gets lost in this story is the “Forgotten Man”-small business. If you look at the small business picture, what you discover is that the picture is not nearly as rosy.
One way to see this is to look at the data from the National Federation of Independent Business (NFIB). The NFIB issues a monthly report called the NFIB Small Business Economic Trends report. Rather than burying you in a ton of statistics, I will simply give you the perspective of the Chief Economist at the NFIB as he discusses the July results of the report.
“On the positive side expectations for business conditions and outlook for expansion accounted for virtually all of the net gain in July’s Index. However, capital spending reports continue to remain mediocre, spending plans are weak, and inventories are too large, with more owners reporting sales trends deteriorating than improving. As long as these stats continue to hold, the small business half of the economy will continue to not be able to pull its weight.”
The good news is that the Small Business Optimism Index has been slowly but steadily rising. This means that small business owners are feeling more confident about their business situation. Since 2009, the low reading for the index was 81.0 in March of 2009 and now the index has risen to 95.7. To give some perspective of how hard small business was hit in this last recession and the work that still needs to occur, consider the fact that the 95.7 reading is at virtually the same level as the LOW reading during the 2001-2002 recession.
According to the report, the three biggest challenges facing small business owners are:
These three issues were also the top three last year, and in the same order of importance.
So, before we broadly claim that “Corporate America” has benefitted the most from this recession, let’s not forget small business owners.
Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.