Last fall, small businesses looked strangely immune to many of the economic woes afflicting large companies that were laying off gads of employees. No more.
Small businesses in the private sector, those with one to 49 employees, lost 284,000 jobs in March, according to the ADP National Employment Report released this morning. Mid-sized businesses – defined as those with 50 to 499 employees - lost 330,000 jobs. That’s compared with 128,000 jobs lost from large businesses.
The report indicates that small companies are shedding jobs just as fast, if not faster, than large ones right now – and that’s unusual in recessions.
Small businesses generally fare better than larger ones in recessions, says Joel Prakken, chairman of Macroeconomic Advisers LLC, a St. Louis-based firm that helps ADP compile its monthly report. That’s because small businesses have less “fat” to cut than larger businesses and because they are more heavily represented among service businesses than in goods-producing businesses like manufacturers that get hurt most by economic downturns. What’s more, family-owned businesses – which are often small – tend to be less willing to lay off employees than non-family-owned ones.
But this recession is different. Many small businesses avoided layoffs for a while last summer and fall when the economy was starting to look bleak. But when Lehman Brothers collapsed and the credit crunch set in, they didn’t have any financial cushion to fall back on, Mr. Prakken says. Also, this recession is lasting longer than previous ones and spilling into pockets of the economy, including many service sectors. Many small businesses held onto their employees through the 2008 holiday season, hoping business would pick up, but then laid off employees right afterward due to very poor sales results.
Mr. Prakken says he expects small-business employment will continue to suffer through the end of 2009 and then improve in 2010. However, “if the [federal government’s] bank rescue plan and the programs being targeted at small-business lending have an effect on loosening credit, I think it’s entirely possible that employment numbers will improve sooner,” he adds.
Do you still expect more job cuts at small businesses? Or is the worst over?
Photo: Associated Press
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