Broken piggy bank with little cash and coins
By Julie Verhage julieverhage
September 21, 2016 — 6:01 AM EDT (Bloomberg)-As Federal Reserve officials gather to issue their monthly assessment of the world’s largest economy, a new study lays bare the extent to which many small firms are pressed for cash.
“Most small businesses are operating on very small margins,” Diana Farrell, CEO of the JPMorgan Chase Institute, an in-house think tank that uses data from the bank to analyze the economy. “The small business sector is less full of future Googles and Ubers and tons and tons of very small operators living month to month,” she said in a phone interview.
The companies in question may be small, but they represent an outsized share of the U.S. economy. According to the Small Business and Entrepreneurship Council, they account for roughly 50 percent of gross domestic product and more than 50 percent of new job creation — a metric that’s closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they’re contributing a great deal to the economy there remains ignorance about their financial health, Farrell added.
The findings come as small-business optimism appears to be stagnating in the U.S., with the National Federation of Independent Business’s (NFIB) Small Business Optimism Index dropping 0.2 percentage points to 94.4 in August. That’s running below its 42-year average of 98.
“Political uncertainty two months ahead of the presidential election could be distorting small business sentiment,” Carl Riccadonna, Bloomberg Intelligence Chief Economist, wrote in a report earlier this month. “A sharp drop in the economic outlook and hiring plans weighed on overall business optimism, pushing the headline NFIB Small Business Optimism Index lower in August.”
Share this:
Related
http://www.bloomberg.com/news/articles/2016-09-21/most-small-businesses-are-barely-saving-any-money-new-study-shows