We need customers

The Census Bureau reported yesterday that the United States now has 46.2 million people living below the poverty line—up 2.6 million people since last year.  Median household incomes fell below 1997 levels. 

No wonder the biggest threat to small business is the lack of customers, not taxes or regulations. 

Last week I told you about a McClatchy Newspaper survey that indicated that taxes and regulations were not holding back small businesses.

Kathleen Madigan, blogger for the Wall Street Journal (champion of the concept that regulations and taxes are the root of all evil) is on board with the lack of demand being the number one issue for small business.  She acknowledges that President Obama’s American Jobs Act seeks to increase consumers for business. 

Now we just need Congressional Republicans to get on board too.

Read Ms. Madigan’s blog below.

Small Business Hangs ‘Demand Wanted’ Sign

By Kathleen Madigan
Wall Street Journal
September 13, 2011

"Nobody knows the trouble I’ve seen.” That’s the song small-business owners around the U.S. are singing. But it isn’t regulation, tax policy or credit constraints causing the woes. It’s the lack of customers.

The widely watched survey of small businesses done by the National Federation of Independent Business shows optimism in August was the lowest since July 2010 when the recovery last hit a soft patch. The drop to 88.1 was the sixth consecutive decline — a record string of declines in the index.

The NFIB bleak view isn’t one dark cloud in a blue sky. Half of respondents to an August survey done by Newtek Business Services are pessimistic about the outlook, and 69% don’t plan on hiring over the next 6-12 months.

Small business-owners are worried because sales are falling and there’s no pickup in sight. The NFIB index covering sales expectations for the next three months is at its lowest since the recession.

Falling sales expectations are bad news for the jobs outlook because companies are not going to add workers if they do not think demand will increase as well.

Jonathan Basile, director of economics at Credit Suisse, points out the NFIB’s sales-expectations index is 10 points below its current hiring index. A negative spread between sales and current employment is rare, he says, and the gap has not been this large since the last recession.

What happened back then when demand kept falling? Small businesses cut jobs with a vengeance, as indicated by the NFIB survey as well as the tally of small-firm employment done by payroll processor ADP.

For now, hiring plans are still slightly positive. But if small businesses do not see more customers coming through the doors or ordering on-line, don’t expect the hiring index — currently at 5 — to stay above 0 for long.

President Barack Obama‘s jobs plan tries to answer the demand challenge by putting more money into workers’ pockets (by expanding the Social Security withholding cut) and by initiating construction projects.

Republicans, however, are voicing opposition to any new spending programs, so that aspect of the bill looks dead.

It seems more likely that the tax cut will go through. Yet it isn’t a sure thing that workers — scared about getting laid off — will spend the money. Higher savings, while a long-run economic positive, mean less demand now when the recovery needs it.

Small businesses have hung out the “Demand Wanted” sign. Until that need is satisfied, however, they won’t be posting a “Help Wanted” sign in the window.