Interested in attending a tea party today?  You can find your nearest location here.  There are over 2,000 events planned for today across the country.

The National Federation of Independent Business Index of Small Business Optimism fell 1.6 points in March to 81.0 (1986=100), making March the second-lowest reading in the 35-year history of the NFIB survey.  Two of the index components improved and eight declined, but nothing in the survey indicated a signal that the economy is improving.

Small business owners have yet to be impressed by some recent slightly encouraging economic news.  They remain skeptical, unwilling to commit to more spending or hiring until they see more customers in their stores.
 
The hard components of the index, those measuring owner spending and hiring plans, actually reached a survey record low.

“At this point, it is not clear that we have hit a quarterly bottom in the index, and we can only hope for a reversal and subsequent expansion led by the small business sector,” said NFIB Chief Economist William Dunkelberg.  “There are signs that the economy is bottoming in the reports of sales, housing starts and auto purchases, but they were not strong enough in March to lift the spirits of small business owners.”

The ADP Small Business Report released today shows that 284,000 small business jobs were lost in March. Declines in March and previous months indicate that the resiliency displayed by small businesses earlier in the recession is no longer apparent compared to medium- and large-sized enterprises.

 

The ADP Small Business Report is a subset of the ADP National Employment Report:

 

• Total small business employment: – 284,000
• Goods-producing sector: – 111,000 small business jobs
• Service-providing sector: – 173,000 small business jobs

 

A new Fortune Small Business/Zogby Poll has found that a little less than half of small business owners say that they have been affected by the recession.  What is really remarkable to me about these results is that if you listen to the media, every business in the US is on the brink of disaster. 

The fact that 57% have not been damaged gives us hope that the entrepreneurial engine we need to pull us out of the recession is ready to grow when the time is right.  This fits with what I am hearing from entrepreneurs. 

Here is a summary of this poll:

• 43% of small business owners say their businesses have been damaged by the recession
• 22% say they have cut the price of products or services
• 17% say they have downsized through layoffs or attrition
• 14% say they have cut salaries
• 27% say their businesses lost money in 2008; 22% say they broke even
• 45% say they would still choose to start a company if they were entering the workforce during the recession

In a speech at Columbia University yesterday Czech President Vaclav Klaus offered advice to US policy makers.  From Rueters:

“I am therefore convinced that fighting for freedom and free markets, something we always appreciated here in this country (the United States), remains the task of the day,” Klaus said….

“The best thing to do right now would be to temporarily weaken, if not repeal,” business regulations on labor, the environment, social issues and health, he said.

William C. Dunkelberg, chief economist for the National Federation of Independent Business issued the following statement on February job numbers based on NFIB’s monthly economic survey that will be released on Tuesday, March 10.

“There was a decline in average employment per firm of 1.0 workers reported for the past three months by small business owners in February, the largest decline in survey history.

“However, 11 percent reported unfilled job openings, unchanged from February and a positive sign going forward. Job openings are a significant predictor of the unemployment rate. Over the next three months, 13 percent plan to create new jobs (up four points), and 10 percent plan workforce reductions (down four points), yielding a seasonally adjusted net-negative 3 percent of owners planning to create new jobs, three points better than January but still historically very low. 

“Not seasonally adjusted, job-creation plans were positive in all industry groups except manufacturing. It looks like the service sector may be finding its legs. Of the nine census regions, job-creation plans turned positive in all census regions except the East South Central and South Atlantic states.

“By year end, growth should be positive again, perhaps as strong as a 4 percent annual rate. Large pools of pent-up demand are forming and will soon begin to be transformed into actual spending.”

Let’s hope he’s right!

According to today’s ADP Small Business Report, small businesses lost 262,000 jobs in February.

 

This marks the fourth consecutive month of decline in the small-size business sector.  February’s number shows greater job losses than January demonstrating the recession’s continued impact on small businesses.  Since small businesses are the backbone of the economy and our primary source of new jobs (80% of new jobs over the past 20 years), today’s report gives an indication of the long road to recovery.

Professor Scott Shane of Case Western University is at it yet again.  He made waves last year for assailing entrepreneurship education, particularly if they have anything to do with small business, or what he calls “marginal businesses” that he asserts actually hurt employment in the economy.  I refuted his analysis here and here at this site. 

Now he is questioning if we really have an entrepreneurial culture in the US in a column at US News.  The same Scott Shane who previously trivialized the importance of small business is now using self-employment statistics to make his point that the US culture is becoming less entrepreneurial.  He looks at self-employment rates over the past ten years.

First, always question those who shift definitions to suit their agendas.  He wants us to only focus on high growth ventures and R and D as the relevant forms of entrepreneurship, but now is using self-employment as his definition of entrepreneurship in our culture.  Why doesn’t he look at LLC and S-corp formation over time, employment in entrepreneurial ventures over time, and the percent of innovation in small ventures over time?  All of these are readily available, and all show the entrepreneurial nature of our culture and our economy.

Second, to look at cultural trends we need to look at more than a ten year snap shot. 

Third, if we are looking at the behavioral part of entrepreneurial cultures, we need to look at comparative rates of business formation across economies.

Finally, a true measure of culture must look at both behaviors and shared values, as pointed out by Dawn Rivers Baker in her counter point to Prof. Scott also published at US News:

Compared to other places on the planet, the United States is very forgiving, culturally, of risk and even of failure.

That is what makes us entrepreneurial…. 

In looking at Prof. Shane’s writings it is clear to me that what he wants is more government directed economic policies toward business formation giving preference only to high growth, high potential entrepreneurship and innovation.  

This is what I call socialized entrepreneurship, which sadly seems to be where the US is headed at the same time that we are socializing healthcare and banking. 

The movement toward socialized entrepreneurship is the one trend that may squash our entrepreneurial culture in this country and it will ruin any hope that entrepreneurship will be the spark to create a new age of economic growth.

There is one bit of good news that we can take from history about recessions and even depressions.  They tend to be a time of major transformations due to the typically high levels Schumpeterian creative destruction active in the economy. 

Consider the following brief list of examples:

• GE was founded during the Great Economic Panic of 1873 
• Disney was founded during the Recession of 1923 
• The Great Depression saw the founding of both HP and Polaroid
• Trader Joe’s was founded during the 1958 recession 
• During the 1975 recession Microsoft was founded
• CNN and MTV both were launched during the 1981 recession 
• And in the 2001 recession iPod launched and Google finally got its market footing and emerged from its start-up phase

Innovations like these helped create ripples of new ventures and other innovations that were the major force in reviving the economy.

So why aren’t we finding ways to help spur entrepreneurship in our economy instead of being consumed with bailing out failing businesses and declining industries?