The Index of Small Business Optimism fell for the third consecutive month in May, reflecting persistent pessimism among small-business owners about the outlook for the economy. Perhaps the most sobering statistic for the jobs outlook: The net share of firms reporting that they plan to hire moved into negative territory for the first time in eight months.
"This report is not good, as small businesses are feeling the brunt of this sluggish economic recovery," says Chris Christopher, senior principal economist at IHS Global Insight. The rationale is simple: Many small-business owners don't fully trust this economic recovery and remain hesitant to invest in their businesses or hire new employees until the economy proves it's on more stable footing. To do that, the economy needs to generate jobs, which will in turn stimulate consumer spending, benefiting small businesses and spurring job creation. It's a vicious cycle.
"We are stuck in this cycle that will eventually get jump-started," McCracken says. "It's just that usually it's been able to happen a lot faster because the credit markets haven't been so locked up."
Nevertheless, there are a few bright spots. The overall decline in confidence has slowed a bit, and experts expect lower commodity and energy prices to offer some relief to battered small businesses in the coming months.
But a full recovery will take time. "The reality is that small companies are such an important part of our economy and the start-ups that replenish [jobs] are so crucial that we're not going to just grow out of this," McCracken says.