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By Knight Kiplinger

The Kiplinger Washington Editors

July 2, 2009

By year-end or so, Congress will give the nod to a major rewriting of the nation's financial regulatory system. This week’s Kiplinger Letter explores whether the package will do more harm than good and what lawmakers are likely to include.

ALSO IN THIS ISSUE: The Economy, Business Costs, Taxes, Supreme Court, Energy, Workplace Regulations, Climate Change, Health Care Legislation and Foreign Policy

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Small Businesses Slash Jobs, Spending

Small businesses are in the same leaky boat as large ones, but aren't getting the same attention from Washington. That could be a costly mistake.

Worth Reading: The Quick Take from Kiplinger

January 2009

Gallup

Gallup has been one of the leading polling and research organizations in the world for more than 70 years and is a prominent consulting organization.

Dennis Jacobe is Gallup's chief economist and specializes in the financial services industry.

It's not especially surprising that owners of small companies report dismal conditions and don't see an improvement coming any time soon. They are faced with the same cost pressures and slack consumer demand as their bigger brothers and sisters in commerce. But since small businesses account for roughly half of private sector jobs, it ought to be alarming.

Nonetheless, the attention and help out of Washington have been almost entirely about massive companies. "As 2008 came to an end, there was a lot of focus on too-big-to-fail companies and the need to preserve the jobs they provided," writes Dennis Jacobe, the chief economist for the prominent polling and research firm Gallup. "As the new stimulus plans are developed to help these companies and create jobs in 2009, the nation's small businesses and their role in job creation should not be forgotten."

Jacobe raises the alarms because a recent Gallup survey of small business owners could hardly be more depressing:

• Nearly half of those surveyed, 47%, say revenues declined over the past year while less than a third, 31%, said they had increased. This negative 16-point difference is down from a positive 13-point spread in the first quarter of 2008. That's a nearly 30-point swing in less than a year. (The survey was taken in mid-November.)

• Spending on such things as computers, machinery, and facilities were cut. Thirty-nine percent said they had reduced capital spending while a fifth, 21%, said they boosted it.

• The jobs picture is worse. Only 11% say they have increased the number of jobs at their companies over the past 12 months, while 27% say they have decreased them.

Jacobe says these worrisome indicators need to be taken into account as President-elect Barack Obama and Congress draft a massive cash infusion for the economy. "If the goal is to save existing jobs and create new ones, small business -- as the major source of private- sector job creation -- needs to play a major role," he writes. "The trick will be for the new administration to find ways to help small business reverse its job-shedding and capital-spending-reduction habits of 2008, and in doing so, help spur the larger economic recovery."

To read Gallup's article on small business sentiment, click here.

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