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Bad news bears: Small business owners’ pessimism bad for America

The NFIB Small Business Optimism Index is down sharply this month. Entrepreneurs have been an essential part of every past recovery.  If they are not optimistic they are not going to hire more workers, buy inventory or increase spending.

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Amanda Renko/The Daily Review/AP
In this June 2012 file photo, Jack Henry Barrett, 8, is seen operating Jack Frost Ice in Teaoga Square in Athens, Pa. Jack Henry, who opened the cart with the help of his father, is happy about his business prospects, but newly released numbers show other entrepreneurs are not so optimistic.

The word out today on the mood of entrepreneurs in the US and it is not at all encouraging.  The NFIB Small Business Optimism Index is down sharply this month.

And who can blame them!

Unemployment remains high and shows to positive growth.  Don’t be fooled by the “80,000 new jobs” spin.  Due to our population growth in this country we need at least 130,000 new jobs each month just to break even with the added people coming into the workforce.  Without jobs, people are not spending.  And without spending in our economy, there is no reason for entrepreneurs to become aggressive again and get into a growth mode.

The President is drawing a line in the sand insisting on increasing taxes for those earning over $250,000 a year.  Many who fall into this proposed tax increase are entrepreneurs.  We know that for every 1% increase in the marginal tax rate that we can expect a 1.5 to 2.0% decrease in start-up activity.  Remember that this announcement came after the survey from the NFIB that showed a sour mood among business owners.

And then there is the new healthcare model about to roll forward in this country.  Many small business owners are paralyzed by the implications of this law.  I have had a couple of friends estimate the costs for their small businesses and it is tens of thousands of dollars for even a modest sized payroll.  Obamacare will lead to a huge decrease in employment in small business as it is implemented over the next two years.  (By the way, most of what we are hearing from the Republicans is only lip service, so we should all plan for it to move ahead).

So we can see why small business owners are in a foul mood.  A weak consumer base, increasing taxes, and increasing labor costs are not going to spur entrepreneurs to help lead the economic recovery.

So why should we care?

Entrepreneurs have led every past recovery.  If they are not optimistic they are not going to hire more workers, buy more inventory and increase capital spending.

This economy is dead in the water and we are doing everything wrong when it comes to helping those who can help rebuild economic growth.

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