According to a new report from the National Federation of Independent Business, small businesses are still struggling under the weight of a poor economy:
In May, the share of companies that planned to shrink their work forces was one percentage point higher than the share of companies that planned to expand them, the first time since last September that this indicator was negative. And even though it was slightly negative, this index, a fairly reliable indicator of hiring decisions, has been trending downward all year.
Unfortunately, while Democrats seem to grasp the problems facing small businesses, their solutions are off the mark. In an interview with Politico's Mike Allen this morning, Democratic National Committee chair Debbie Wasserman-Schultz said tax cuts for small businesses were the way to generate employment and "pick up the pace of the recovery."
But when asked to identify the "single most important problem" facing their businesses, a quarter cited "poor sales." What's more, according to the survey, weak consumer spending is the main thing driving pessimism for small businesses. As you can see from the graph below, this makes perfect sense:
The economy is suffering from a huge demand shortfall, driven by high unemployment across all sectors and education levels. Tax cuts for small businesses are nice, and might even encourage hiring, but neither deals with the underlying dynamic: There just aren't many customers to sell to, and businesses don't hire for the sake of hiring.
