It’s the Lack of Demand, Stupid

The talk about “uncertainty about government regulation or healthcare” as being the major reason why businesses are holding back and not hiring is just plain nonsense.  It’s not supported by either any intelligent micro-level analysis of firm level decision making.  It certainly isn’t what the businesses themselves report when asked.  We turn to the NY Times Economix column today by  Catherine Rampell

What’s Holding Back Small Businesses?

The biggest single problem facing America’s small businesses isn’t taxes or overregulation. It’s low demand, according to a new report released by the National Federation of Independent Business.

Thirty-one percent of small businesses surveyed by the N.F.I.B. said that “poor sales” are their company’s “single most important problem.” The other options included were competition from large businesses, insurance costs and availability, financing and interest rates, government requirements and red tape, inflation, quality of labor, cost of labor and “other.”

Here’s a chart breaking down what percent of small businesses cited each of these problems as their biggest challenge, going back to 1986:

DESCRIPTIONNational Federation of Independent Business, via Haver

Much of the debate about how to spur growth and encourage hiring has focused on making the tax picture temporarily more business-friendly. But as you can see, the portion of small businesses citing taxes as their superlative problem has remained about the same — mostly in the 17-22 percent range, say — for about a decade.

Additionally, lending help for small businesses is another key stimulative policy in play, and meanwhile financial and interest rate concerns are a comparably negligible concern.

By contrast, the share of companies saying the poor sales is their main challenge has about doubled since the downturn began.