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Small businesses are faltering on job creation

The majority of small-business owners in California say they don't plan to hire any workers in the next few months as consumer confidence remains weak.

July 07, 2012|By Ryan Faughnder and Shan Li, Los Angeles Times
  • Employment experts say that small businesses are crucial job generators during a recovery. Businesses with fewer than 500 employees traditionally make up more than half of new jobs created, and are the first to begin hiring after a recession.
Employment experts say that small businesses are crucial job generators… (Jae C. Hong/Associated…)

Behind the weak job growth numbers and the uncertainty about the economic recovery, small-business owners see shrinking consumer confidence sapping demand for their products and services.

Many small firms say they are barely staying afloat and won't hire until they see signs of more stability in the marketplace. That sentiment doesn't bode well for efforts to push the economy forward.

Small business, the conventional engine of job growth, has been particularly active in the last two years in driving the recovery from the Great Recession. But it may not be able to sustain its efforts.

"There is no reason for small businesses to do well in this environment," said Chris Christopher, senior principal economist at IHS Global Insight. "Most of the employment growth you see coming out of a recession is coming from small businesses, but employment growth is anemic and the reason is small businesses not hiring."

The Labor Department said Friday in its monthly jobs report that U.S. unemployment is stuck at 8.2% for the second consecutive month. Industries such as construction and retail, which are composed largely of small businesses, showed little to no growth in June.

The poor economy has been weighing on Joanne Weinoe, the owner of Golden State Magnetic & Penetrant Lab in Arleta. Government cuts to defense spending have seriously hurt her company, which performs inspection and surface treatment servicing aerospace and medical industries. Her firm has laid off two workers in the last six months, reducing the staff to 14.

Slow business means that Weinoe simply can't afford the skilled workers her company requires. "I can hire someone less expensive, but are they going to mesh with the company and the vision I've established for the business over the last 25 years?" she said.

It's a problem that many California businesses face. Nearly two-thirds of small businesses in the state do not plan to hire any new employees in the next few months, according to a recent survey conducted by the business advocacy group Small Business California. About 30% of companies plan to reduce the number of employees in the next year, 48% plan to stay at the same level, and only 21% plan to hire new workers.

Employment experts say that small businesses are crucial job generators during a recovery. Businesses with fewer than 500 employees traditionally make up more than half of new jobs created, and are the first to begin hiring after a recession.

"When you look at the overall numbers for years on end, small businesses have been the major job creators in the country and in California," said Scott Hauge, president of Small Business California.

Hauge said that small businesses usually try to hang on to their workers and serve as a buffer during economic downturns, but the Great Recession forced many to lay off employees — kicking the economy even deeper into the doldrums. Now, the same businesses are recovering slowly and cannot provide the kind of boost they have in the past, he said.

"They are still probably leading the parade as far as hiring, but it's not quite with the same gusto like in past recoveries," Hauge said.

Not every small-business owner is going through difficult times. Dan Schrier, who runs Japanese Automotive Center in Torrance, says he plans to hire more employees this year. During the recession, he added two workers to his now 13-person shop.

Auto repair shops are doing well because people have been holding on to vehicles longer, Schrier said. "People are spending money to fix cars."

Some economists speculate that given the obstacles small businesses are facing, the economy may be forced to look elsewhere for job growth.

Chris Thornberg of Beacon Economics said that unlike the recession a decade ago, which largely affected tech firms, the Great Recession hit more industries and dealt particularly heavy blows to consumers' wallets.

"This was an enormous consumer recession, and if small businesses depend on consumers then that is a problem," he said.

"This time around, the recovery is happening in manufacturing, it's happening in exports, it's happening in parts of the economy that tend to be dominated by large firms."

Still, many economists think entrepreneurs, like Mike Von Bampus of Sherman Oaks, are key to the economic turnaround.

Von Bampus, the owner of Tropical Green Interiors Inc., started his business in 2005, doing interior design for businesses and private residences.

But business has slowed as commercial clients have cut back on spending. He has one part-time employee who has been asked to work fewer hours.

"Customers are cutting back on the products they buy, like orchids and plants, and they're doing what they can with the bare minimum," he said. "My commercial clients are doing the same. They're worried about what's going to happen in the next couple years."

Von Bampus said he's been getting cold calls and unsolicited resumes, sometimes from people fresh out of college who are desperate for any work.

But he doesn't expect things to pick up soon, especially with the gyrating economy.

"It's kind of hard to have optimism right now," he said.

ryan.faughnder@latimes.com

shan.li@latimes.com

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