The City & My Life|AFP – With unemployment fast becoming one of US President Barack Obama’s biggest domestic challenges, focus is shifting from “too-big-to-fail” manufacturing and financial giants to struggling small businesses.
After months of high-level intervention to save mega-firms like General Motors and Goldman Sachs, Obama’s economic team is now looking at small firms amid discouraging indicators about their health.
This week the White House received word that the official US unemployment rate passed the symbolic 10 percent mark to 10.2 percent in October, the highest level in 26 years.
Obama called the figure “sobering” and quickly said his administration was considering steps to spark job growth and to “increase the flow of credit to small businesses.”
ADP, a data monitoring firm, this week reported more bad news: that three quarters of jobs lost between September and October in the private sector were in firms with fewer than 500 employees.
Hit with a double whammy of wizened access to bank lending and reduced consumer spending, small business bankruptcies in September increased by 44 percent versus the same month in 2008, according to Equifax, another data monitoring firm.
While it is unclear what form Obama’s small-business assistance might take, some lawmakers have lobbied for a small-business tax credit that would rally firms to hire staff.
The scale of Obama’s task could hardly be larger. According to government figures, in 2003 firms with fewer than 500 employees accounted for 97 percent of US exports.
The US Census Bureau says firms with one to four employees make up the largest section of the country’s 25 million-plus companies.
And the stakes were made clear last week when CIT, a multi-billion-dollar lender to small and medium-sized companies, filed for bankruptcy.
On receiving that news, traders around the world expressed their concern by dumping the dollar, sending the currency plummeting against the euro and yen.
But if the scale of the problem is overwhelming, then so too is the depth.
Mark Zandi, chief economist at Moody’s Economy.com, a ratings agency, warned in a blog that small firms were still “struggling to obtain credit,” and were dependent on dysfunctional financial markets.
Hoping that small firms might soon be taking on more hires, Zandi warned that “a more worrisome possibility is that firms are so shell-shocked that they won’t resume hiring.”
But Zandi also offered a glimmer of hope for Obama, stating that a small-firm recovery could spur on the wider economy.
In an article which appeared in The New York Times he pointed out that companies with fewer than 20 employees created 40 percent of new jobs during the last economic boom, between 2003 to 2007.