Little Hiring Seen by Small Business

From The Wall Street Journal | July 11, 2011 | By SIOBHAN HUGHES

WASHINGTON—The U.S. labor market could stay sluggish for a while, with small-business executives reluctant to hire amid the murky economic outlook.

Almost two-thirds—64%—of small-business executives surveyed said they weren't expecting to add to their payrolls in the next year and another 12% planned to cut jobs, according to a U.S. Chamber of Commerce report to be released Monday. Just 19% said they would expand their work forces.

This comes after a Labor Department report Friday showed employers added few jobs in June, and unemployment rose to 9.2%. The bleak figures joined other data showing the recovery losing momentum in recent months, which has caused many analysts and policy makers to lower their forecasts for economic growth in the second half of the year.

The Small Business Administration says small businesses, defined as companies with fewer than 500 workers, employ about half of the workers in the private sector. In the Chamber's survey of 1,409 executives, conducted by Harris Interactive, small businesses were defined as firms with revenue of $25 million or less.

More than half of the small-business executives in the June 27-30 survey cited economic uncertainty as the main reason for holding back on hiring. About a third blamed lack of sales, while just 7% pointed to problems getting credit.

"I think it's safer to stay on hold and not hire workers," said Harold Jackson, chief executive of Buffalo Supply, a Lafayette, Colo., distributor of high-tech medical equipment used in operating rooms.

Mr. Jackson said he has halved his staff to 15 workers since 2009 and was unlikely to start hiring soon even if his business picked up. "I can handle a reasonably large increase in business without having to increase the staff."

Many of the executives surveyed were gloomy about the economy's prospects. About 41% see the business climate getting worse over the next two years, compared with 29% who expect the climate to improve.

The modest hiring plans of small businesses don't make up for the job losses in the past year, when some 29% let go workers, far outpacing the numbers that now plan to hire.

The June survey was conducted while the White House and congressional leaders were working to reach a deficit-reduction agreement that would ease the way for Congress to raise the federal borrowing limit by Aug. 2, in time to prevent a government default on its obligations. Treasury officials have predicted a default could trigger another financial crisis, sending interest rates soaring and causing a recession.

Of the small-business executives who responded, 70% predicted a negative impact for their business in the case of a government default.

"Small-business owners are pretty savvy; they do understand the ramifications for credit," said William Miller, a senior vice president at the Chamber, who owns restaurants in Washington, D.C.

The executives had more confidence in their own futures than in the future of the country. While just 29% said that America's best days were ahead, 39% said their own business's best days were ahead. Some 84% said the U.S. economy was headed in the wrong direction, but 61% thought their own business was headed the right way.

"I'm optimistic about the future, but you still have to find your way through all these issues," Mr. Jackson said.

Write to Siobhan Hughes at siobhan.hughes@dowjones.com