Fiscal Uncertainty in Washington Shakes Small Business Confidence

Small businesses are at the core of the United States economy, and their owners aren’t feeling so hopeful these days.

“Traditionally, we are led out of a recession by small businesses hiring people and creating jobs, and that’s not happening in this recession,” says Dan Danner, President and CEO of the National Federation of Independent Businesses (NFIB).

His organization has just released a survey that tracks small business trends. The report shows that small business confidence was down for a third straight month in May, and that only 5 percent of small business owners think now is a good time to expand.

Economist Martin Baily of the Brookings Institution says the lack of investment, hiring and expansion by small businesses is one of the reasons the nation’s economy isn’t recovering as quickly as some expected. Data from the Bureau of Labor Statistics shows start-up businesses are at an all-time low.

“Even those that are starting are not hiring too many people,” Baily says.

Experts say Washington’s unresolved debt crisis – including questions about how to address the solvency of Medicare, Medicaid and Social Security – is fueling a level of uncertainty that tends to bring many small businesses to a standstill.

“There’s enormous uncertainty about how the political process is going to grapple with those issues,” Georgetown University economics professor Brad Jensen says.

Economist Veronique de Rugy adds, “It paralyzes entrepreneurs and people who usually are willing to actually take risk and invest their own money in their business.”

While pundits, lawmakers and economists may disagree about how to resolve those weighty problems, there is general agreement that coming to some kind of resolution will allow small businesses – now waiting on the sidelines – to restart hiring and investing.

Jensen says finding long-term fiscal solutions would provide an “enormous” boost to small business confidence.

“Lifting this uncertainty is really key to empowering individuals and entrepreneurs,” de Rugy says. “Ultimately, they are the true actors of economic recovery.”

Interestingly, data from the NFIB survey shows that small businesses are not lacking access to capital. However, most report they aren’t interested in tapping into it because they have no plans to expand until they have a more solid picture of America’s fiscal future.