Lack of Growth Due to Lack of Customers

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Don Lee of the LA Times presents yet more pessimistic news about our anemic economic recovery:

In every recession over the last three decades, it has been America’s small businesses — those Lilliputian companies with fewer than 100 employees — that stepped forward, began hiring and pulled the country out of the mire.

Not this time….A host of factors — some well-recognized and others seemingly unnoticed in the national debate over economic policy — are converging to restrain small-business owners from hiring. Among them:

  • Near-stagnant demand for goods and services as a result of consumers’ reluctance to return to their free-spending ways.
  • A disturbing falloff in the creation of new small businesses.
  • The devastation of the real estate market.
  • Uncertainty about the economic outlook at home and abroad.

….The fact that many small firms are seeing little increase in demand for their services and products is decisive for Scott George, owner of Mid-America Dental & Hearing Center, which employs 55 people in the southwestern Missouri town of Mount Vernon.

“I’m not having any trouble getting money,” said George, who recently got a $250,000 loan to renovate one of his buildings. But he’s not hiring more workers because of little or no growth in sales.

As it happens, I’ve read conflicting evidence about whether or not it’s really small businesses that are usually the engines of job creation when the economy comes out of a recession. It seems to vary with the recession, and in any case the net difference between job creation in small vs. large businesses appears to be modest. Still, most of what Lee says here applies to large businesses too: lack of expansion right now is due less to credit woes than to simple lack of demand. Until consumers start spending again, economic growth is going to be weak. But what’s going to get consumers spending again?

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