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Log In / Register | Apr 16, 2014

Small Business Bankruptcies Falling, Incomes Rising

Small Business Bankruptices and Proprietor Income from the Office of Advocacy, SBA
Data: SBA's Office of Advocacy*

WASHINGTON — The Small Business Administration says that small businesses continue to show signs of economic recovery.

The Administration's Office of Advocacy says that the most promising indicators are the declining number of small business bankruptcies and the growing income (operating profit) of their proprietors.

Brian Headd, economist for the Small Business Administration's Office of Advocacy tells Blue MauMau that although he doesn't have a crystal ball, small business economic indicators are getting better. "The numbers generally seem positive," observes Headd. "They haven't gone hockey stick up [trending sharply positive so the line looks like a hockey stick] but there is definitely an uptrend." Headd cautions, "It may not be as fast as we want or need."

The National Federation of Independent Business (NFIB) has data that supports this. Its optimism index, which polls 870 randomly sampled small business owners from its membership rolls, shows an increase in optimism in February. That's up 1.9 points from 88.9 in January. NFIB called the increased outlook "a nice improvement" but still below the low of the preceding two recessions of 1991 and 2001.

NFIB Small Business Optimism Index
Data: National Federation of Independent Business, Jan '08 - Feb '13. Jan '06=100

The federation thinks large Wall Street firms are largely reaping benefits of a recovery while small businesses are still hit hard. "While the Fortune 500 are enjoying record high earnings, Main Street earnings remain depressed," says NFIB chief economist Bill Dunkelberg. He thinks the budget squabbles of Congress aren't helping. "Washington is manufacturing one crisis after another—the debt ceiling, the fiscal cliff and the sequester. Spreading fear and instability are certainly not a strategy to encourage investment and entrepreneurship." The organization points out that three-quarters of its small-business owners think that business conditions will be the same or worse in six months.

But there are other positive indicators of the state of small businesses. NFIB's March index shows that the biggest upticks were small businesses planning to increase inventories and to make more capital.

The Office of Advocacy points out how the larger of the small firms, those between 20-499 employees, have now picked up their hiring and are driving employment. That good sign is coupled with the sobering thought that the labor market is still sluggish.

NFIB's economist Dunkelberg stresses how plans to hire new staff by small business owners have only clicked up one point from January. "Until owners' forecast for the economy improves substantially, there will be little boost to hiring and spending from the small business half of the economy," he says.

Meanwhile, small business indicators continue to click upwards.

*Note: Proprietor income are based on the Internal Revenue Service data on non-S Corporation, proprietorship filings.

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