Experts are posting an optimistic outlook on small business and economic growth trends following the release of two important economic indicators late in 2013 concerning employment and interest rates. Both of these positive indicators are considered key to consumer spending, which drives two-thirds of the economic activity in the U.S.
Positive Small Business Indicators in 2013
In November 2013 the unemployment rate was listed at 7 percent, its lowest level since 2008. This is important in the area of small business growth, as small businesses are responsible for 4.3 million of the 6.9 million (or 63 percent) of the jobs created since the beginning of the recovery. Likewise, although interest rates did rise slightly over the past year, they still remain at historic lows, benefiting small businesses in interest-sensitive industries such as the automobile and construction markets.
Other positive indicators in 2013 include an improvement in small business lending and double-digit increases in home prices in major metropolitan areas (significant since home equity is an important source of small business capital).
Possible Challenges in 2014
So what does this mean for small businesses in 2014? While there are positive trends emerging, the success of individual businesses is going to depend primarily on the strength of demand for their particular goods and services. From a federal policy perspective, there are 3 key areas of uncertainty that may affect the small business climate in 2014.
- Deliberations surrounding raising the debt ceiling: In February 2014 the debt limit for federal borrowing will expire and Congress will once again debate this hot-button issue. If the debt limit is used as a bargaining chip in the larger budget debate, this may have significant unintended consequences on financial markets and the economic environment.
- Reform of entitlements, taxes, or both: A combination of the aging of the population and rising healthcare costs are expected to accelerate the growth of entitlement programs such as Social Security and Medicare. One option for balancing this out involves significant increase in taxes, major cuts in benefits or services, or both. From a small business perspective, changes to entitlement payroll tax rates or changes to the taxable wage base to determine payroll tax liabilities will adversely affect profitability in the short term.
- Potential changes to monetary policy: Many interest-sensitive industry sectors that did well in 2013 benefited from the Federal Reserve’s large-scale purchase of government securities, which has kept interest rates at historic lows. It remains to be seen how the tapering of this policy will affect interest rates and the ability to access capital in 2014.
Mulvey, Janemarie PhD. “Positive Small Business Indicators in 2013 and the Challenge Ahead.” The Small Business Watchdog. 1/7/14.