Could worries about small business be overblown?
Among the many worries of Federal Reserve officials, a big one is the extent to which tight bank credit will prevent hiring by small businesses, which tend to account for a disproportionate share of job growth in recoveries. Big companies, the logic goes, can borrow from bond markets, but smaller ones have nowhere to go if the bank says no.
J.P. Morgan economists Bruce Kasman and Robert Mellman, though, believe the Feds concerns might be misdirected. They point to new Labor Department data, released this week, that show that while small businesses havent started adding jobs, they did manage to cut losses by more than half in the second quarter of 2009. Meanwhile, job losses at large firms actually accelerated, at a time when those firms were borrowing unprecedented amounts of money through bond markets.
Messrs. Kasman and Mellman also note that in a study published this week by the National Federation of Independent Business, small business owners cited poor sales as their main problem. The business owners also said that getting a loan has become a lot harder, but only about one in ten cited that as their most important problem right now.
To be sure, none of this means reluctant lenders wont become a problem if and when small businesses as a whole do gain the confidence to start adding jobs. Overall bank lending in the US economy shrank 7.4% in 2009 — the sharpest drop since 1942. And the local and regional banks that typically lend to small businesses face some big obstacles to turning that trend around, not least of which is the more than $250 billion analysts at Deutsche Bank estimate banks still stand to lose on souring commercial-real-estate loans.
In short, its much too early for the Fed to relax.