In good sign for U.S. economy, small businesses boost hiring

December’s weak employment report was a like a bucket of cold water poured over a person recovering from hypothermia: a shocking set-back. 

But now there’s a flicker of warmth that’s tempering that weak jobs report. Small businesses, the backbone of the U.S. economy, are not only hiring, but also feeling more optimistic about the future and boosting their capital spending. 

Small business owners increased employment by an average of 0.24 workers in December, the best number since February 2006, the National Federation of Independent Business said Tuesday. That increase is significant, with the small-business sector representing roughly half the private-sector economy.

 The NFIB survey “shows that the outlook for the labor market is improving,” said Ed Yardeni, president and chief investment strategist at investor advisory firm Yardeni Research, in a note to clients. “Even more encouraging is that the percentage of firms with one or more job openings rose to 23 percent, the highest since January 2008."

By comparison, as of late 2010 only 9 percent of small businesses had at least one job opening, he noted.

Yardeni also cites the capital spending plans of small businesses, with about one-quarter noting that they plan to make such investments in the next three to six months. “Those capital-spending plans are highly correlated with the percent of firms reporting that earnings were higher minus those reporting that they were lower over the past three months,” he wrote.

Ian Shepherdson of Pantheon Macroeconomics thinks the NFIP survey signals that small businesses have broken out of the funk created by October's government shutdown. But “The real test will come over the next few months, when we expect the index finally to break out of its post-crash range and reach new, sustainable highs," he said in a research note.

Of course, not everything is coming up roses. President Obama is heading to North Carolina today to preview some economic themes he’ll focus on in his Jan. 28 State of the Union address. Among them are how to boost job-creation in the manufacturing sector, which hasn’t yet replaced all the jobs lost during the recession. 

Small businesses will need to weather a few storms this year, the NFIB noted in its survey release. One could be Obamacare, which “will continue to generate issues for small business owners as well as individual consumers,” NFIB chief economist Bill Dunkelberg said in a statement. 

Still, relatively few small businesses will be affected by Obamacare, given that firms with fewer than 50 employees are exempt from the mandate to provide employees with health-care coverage. Of the 28 million small businesses in the U.S., 96 percent won't be subject to the health law  , according to the U.S. Small Business Administration.

  • Aimee Picchi

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