Hiring On Hold At Many Small Businesses, Cutting More Than Hiring

Small business isn’t hiring: That’s one reason the U.S. employment situation isn’t improving. Nobody wants to hire new employees if they don’t have to.

Small business owners lack the confidence the current state of the economy to take on new employees. Many businesses are also operating with fewer employees, having been forced to do so in the Great Recession.

More U.S. small-business owners say they let employees go than hired them on average during the past 12 months, for a net hiring index of -10 in January, according to the Wells Fargo/Gallup Small Business Index.

Companies are hiring IT workers, but most aren't hiring at all.

Companies are hiring IT workers, but most aren’t hiring at all.

These results are from the quarterly Wells Fargo/Gallup Small Business survey, a random sample of 601 small-business owners conducted Jan. 7-11, 2013.

Small-business owners’ self-reported net hiring suggests less overall hiring activity and essentially no improvement in small business job growth during the past two years.

Owners did less hiring and less firing in January.

The 12% of small-business owners increasing hiring during the past 12 months is down from 14% in November.

However, the 22% reporting a decrease in the number of jobs during the past year is down from November’s 26%.

Owners Are Not Hiring For More Than the Usual Reasons

When Gallup asked small business owners who aren’t hiring to evaluate eight potential reasons for not hiring, overall business conditions headed the list.

The reasons included not needing new employees at this time (81%), worries that revenues or sales won’t justify adding employees (74%), and concern about the U.S. economy (66%).

However, 61% of small business owners gave the potential cost of health care, 56%, new government regulations, and 55%, cash flow or ability to make payroll, as reasons for not hiring.

Thirty-two percent point to a lack of qualified employees.

A surprisingly high number of small business owners, 30%, said they are not hiring because they may not be in business in 12 months. This is up from 24% with the same concern in January 2012.

nethirnggallupOwners’ Hiring Intentions Turned Positive in January

U.S. small businesses now expect to add more net new jobs than they eliminate during the next 12 months.

Currently, 12% of small business owners expect the number of jobs at their companies to decrease during the next 12 months, down sharply from the 21% in November.

At the same time, 17% expect to increase the number of jobs, the same as in November but down from 20% in July. The number of expected job increases is at its lowest level since October 2011.

Small Business Hiring Implications

The lack of improvement in net hiring during the past 12 months is consistent with January’s lack of year-over-year improvement in Gallup’s P2P (Payroll to Population) employment rate.

Small businesses continue hiring fewer employees than they are letting go. Full-time U.S. employment is, at best, keeping up with U.S. population growth.

The lack of improvement in small-business hiring is also consistent with the estimated -0.1% annualized fourth quarter GDP growth rate.

However, small-business owners’ net hiring intentions turned positive in January, consistent with improvement in the quarterly Wells Fargo/Gallup Small Business Index.

While small business owners say there is little improvement in net hiring, hopes for future hiring have improved compared with immediately after the November 2012 elections.

The fact that so many small business owners say concerns about potential health care costs and potential new government regulations are preventing hiring is isn’t good for the job market outlook.

Most worrisome is that 30% of small business owners fear they won’t be in business next year.

This is a bad sign for small business hiring and capital investment, and the U.S. economy overall in 2013.

For details on Gallup’s polling methodology visit www.gallup.com.

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