Obama targets small firms

By Sharon Bernstein and Don Lee

Aug. 31, 2010 12 AM PT

LOS ANGELES AND WASHINGTON — President Obama called for renewed efforts to stimulate small business, long the nation’s major engine of job growth, as new private data Monday showed that many smaller firms are losing confidence in the economic recovery and are slowing the pace of their hiring.

Amid the latest signs of a sluggish recovery from the deep recession, Obama chastised Republicans for holding up legislation that would restore funding for certain federally backed loans to small businesses and provide other relief.

“The small-business owners and the communities that rely on them, they don’t have time for political games,” he said. “Holding this bill hostage is directly detrimental to our economic growth.”

Obama said his administration was working to “identify additional measures” that could boost hiring, but economists don’t see lawmakers approving new major programs to stimulate the economy until after midterm elections in November -- at the earliest.

Hiring by the nation’s smallest businesses slowed considerably in August, according to a report released Monday by Intuit Inc., a provider of payroll services. It’s a troubling indicator because most economists believe that for the recovery to gain steam, small businesses need to be strong enough to hire new workers.

Intuit’s data showed that small businesses added just 26,000 jobs in August, the same as in July and one-third of the number added in April when confidence was higher. The information is based on payrolls that the company processes for 57,000 businesses with fewer than 20 employees.

“Small-business employment is still expanding, but since April, it’s been expanding at a slower and slower rate,” said Susan Woodward, the economist who analyzed the payroll data for Intuit. The results are of particular concern, she said, because August is usually a good month for hiring.

Another small-business report, by credit card company Discover, showed that owners of smaller firms are increasingly pessimistic about the economy and are holding off expanding until conditions improve.

Only 17% of small-business owners surveyed by the company said they would increase business development spending in the next six months.

Tom Brown, who owns consulting company Pacific Crest Group in Larkspur, Calif., said most of his clients were too nervous about the economy to hire right now -- even if their business is good.

“They’re growing and growing nicely, but they just don’t want to make a change,” he said.

Robert Alva, who owns Super Cool Air Conditioning Inc. in El Monte, has been waiting all summer for the boost in business that would allow him to hire four new people. He wants to expand by selling solar panels.

But demand just isn’t high enough to justify the expansion, he said.

“Now I’m thinking to do it sometime in April or May of next year,” Alva said. “Because I’m hoping there will be a change in consumer confidence, and the banks and lending institutions will loosen up on the purse strings by then.”

New economic reports Monday added to concerns.

The Commerce Department reported that consumer spending rebounded in July, rising 0.4% from June, the fastest growth since March. But personal income was up just 0.2% amid expiring government stimulus programs and continued weakness in job growth.

Federal data Friday showed that economic growth slowed to an anemic 1.6% annualized pace in the second quarter, down from 3.7% in the first quarter.

If the poor growth in personal income and jobs continues, that could hurt small businesses, which are disproportionately affected when consumers cut back.

William Dunkelberg, chief economist for the National Federation of Independent Business, said the bigger problem for small business is weak sales.

Obama has previously called for passage of the small-business assistance bill, which was approved by the House but has been held up in the Senate since July.

Since money ran out in late May for a key lending program included in the bill, loans to small businesses have dropped dramatically, renewing a credit crunch that has crippled many firms and inhibited expansion, advocates said.

Despite Obama’s support, some economists don’t see the measure as a major boost to the economy or job creation.

“I don’t think it’ll have any noticeable impact,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank.

Despite concerns over the slowdown, small businesses did add more jobs than they lost over the last month. Among those companies was the CAO Institute of Aesthetics, a beauty school in Alhambra that has added 10 positions this year.

Owner Peggy Lee said that the poor economy has helped her business because people are coming to the school to learn new skills. A hairstylist or makeup artist can work for himself or herself rather than relying on an employer, she said.

“People are looking for a place that’s more secure for them,” she said, “because you never know when you’re going to be laid off.”

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