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Markets' rally unlikely to smooth path for small firms

  • Article by: Don Lee
  • Los Angeles Times
  • March 9, 2013 - 4:47 PM

The stock market is flying high, but much of small business America remains grounded.

Unlike the big corporations that have been raking in huge profits and stoking the stock market toward record highs this week for the Dow Jones industrial average, most small firms have yet to enjoy the fruits of the nearly 4-year-old recovery.

Even though some small employers are starting to see daylight, particularly with the housing market coming back to life, analysts and business owners paint a picture of companies still hampered by weak sales and pangs of uncertainty, particularly over tax and government policies.

Small businesses typically have been engines of job creation, but their lagging performance, along with a sharp drop in the rate of new start-ups, has been a key reason employment growth has remained mediocre.

Since the jobs recovery began in February 2010, employment at companies with 1,000 or more workers has grown by more than 8 percent, according to payroll processor Automatic Data Processing and research firm Moody’s Analytics.

But for firms with fewer than 20 employees, the net job increase has been just 3.4 percent over that period, though the gap has narrowed somewhat in the last year.

The payroll tax increase at the start of this year and the government spending cuts that began March 1 won’t help matters. Combined, they are expected to slow economic growth markedly this year, which will probably hit smaller businesses harder because they have less financial cushion to absorb temporary jolts.

The most recent survey by the National Federation of Independent Business, a major trade group for small employers, found that its confidence index had ticked a little higher in January but remained at one of the lowest levels in four decades.

Federal Reserve data show that demand for loans from small businesses is picking up, but credit remains tight. With fewer community banks, many small employers have few places to go for cash.

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