Small businesses felt the burden of the deepening recession in 2008 and earlier this year, but a new report suggests that if the past is any indication of what’s to come, small businesses will be leaders on the road to economic recovery.
The Small Business Administration’s (SBA) Office of Advocacy released the 2009 edition ofThe Small Business Economy, which documents the 2008 recession’s effects on small businesses and their role in the year’s economy.
Small businesses were particularly affected by the recession during the fourth quarter in 2008, with the fourth quarter gross domestic product (GDP) down 6.3 percent on an annualized basis; however, the real GDP did see a 1.1-percent gain for the year.
In most industries small businesses saw declines in employment, with the construction industry being hit particularly hard due to the struggling housing market. The report also indicates that some surveys of small businesses found that smaller firms are expressing less willingness to expand, hire new workers, invest in new plants and equipment or borrow money, at least in the foreseeable future.
Health care costs continue to be a major concern for small businesses, with the Kaiser Family Foundation reporting a 5-percent increase in the average annual cost of a family premium for employer-sponsored health insurance from 2007 to 2008.
The report suggests that small businesses generally face difficult competition in offering employee benefits, which results in greater employee turnover—the provision of benefits increases the probability of an employee staying for an additional year by 13.9 percent. Furthermore, demographic trends suggest that small businesses may face challenges in employee retention and recruitment, particularly as Baby Boomers continue to retire.
On the upside, real exports have risen steadily since 2005 despite the challenges global competition provides for businesses of all sizes. According to the report, the value of real exports increased 6.2 percent in 2008, a higher rate than for the growth of imports.
As for financing in 2008, most small businesses faced a less accommodating credit market, especially in the second half of 2008. According to Call Report data from June 2007 to June 2008, developments in the financial markets had a limited impact on lending to small businesses in the first half of 2008.
The full report can be downloaded as a PDF here.
