Charlie Cook: Small Business Blues Shaping Political Climate

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In the Economic Report of the President, released last month, the President's Council of Economic Advisers predicted that the average unemployment rate for this year would be 10 percent, while the official Labor Department unemployment numbers were 9.7 percent for both January and February.

The March Blue Chip Economic Indicators survey of 51 top economists predicted an unemployment rate of 9.8 percent for the year, specifically 9.8 percent for the third quarter and 9.6 percent for the fourth quarter. In that Blue Chip survey, the most optimistic forecast of the 51 economists surveyed was 9.5 percent, and the most pessimistic was 10.1 percent, so there really isn't much variance in the projections.

In short, the top economists in the country, both in and out of the administration, do not believe there will be any material improvement in the unemployment rate this year.

Not since the Great Depression has this country seen a solid year of unemployment at even 9 percent, let alone a figure not dropping below 9.5 percent during the 12 months leading in.

Part of the challenge is that even though the consensus forecast for change in real gross domestic product for the year is 3.1 percent, this recovery doesn't seem to be creating many jobs, particularly in the small-business sector, which has traditionally been the source of job creation.

Economists tell us part of the reason is a lack of access to capital. While big business has access to various forms of financing, these days small business is having a very hard time getting financing -- and thus has a smaller safety net and less maneuverability in these tough economic times.

But more than access to capital, business is doing everything it can to boost productivity, using technology and smarter management to get more work from fewer people, paying more overtime if necessary and even bringing in temporary workers, all in an effort to not take on the obligations that come with hiring full-time workers.

That lack of a safety net, for small-business owners, makes them particularly skittish about the potential for either a double-dip recession or an L-shaped leveling-off with insufficient growth for a sustained period of time. A Wall Street Journal article on this subject last week quoted David Altig, head of research for the Federal Reserve Bank of Atlanta, saying that while small business accounted for just 9 percent of the job losses in the 2001 recession, in the current one, 45 percent of all job losses have come from small business. These small-business owners have felt the brunt of this recession and are exceedingly reluctant to bring on new people during such uncertainty.

via www.nationaljournal.com