Why Mom and Pop Are Afraid to Hire You

Article excerpt

Byline: Gary Rivlin

Just what will it take for small businesses to join the recovery?

Raymond Arth knows he should feel better about the economy. Sales are up at Phoenix Products, the faucet company he runs in a suburb west of Cleveland. He had a good 2010, and he's on pace to have an even better 2011. His company hasn't returned to its pre-recession revenues selling its wares to the makers of RVs and manufactured homes, but Phoenix Products is making a profit again and has enough orders that Arth decided to add eight workers to his core staff of 25 full-time employees. So why are the new hires all temp workers?

Like too many other small-business proprietors, Arth doesn't fully trust this economic recovery. While he says he's "guardedly optimistic" about it, his actions are all about the first half of that phrase. He worries that rising gas prices will tamp down RV sales. The volatility in the price of metals and other commodities has brought a spike in the cost of his raw materials. "There's still just too much uncertainty out there," Arth says.

In the Labor Department's latest snapshot of the country's job market, the private sector added 268,000 jobs in April, the largest gain in five years and the third consecutive month of solid job growth. Austan Goolsbee, chairman of the president's Council of Economic Advisers, says the economy is clearly on track, despite an unemployment rate of 9 percent.

Yet a more sobering account of where the economy might be headed--and arguably a more accurate barometer of the near-term future--is the monthly report published by the National Federation of Independent Business. After all, it's small businesses, which have created two out of every three new jobs the economy has added since the early 1990s, that historically have led the country out of recessions. And it's the owners of small businesses (defined as enterprises with fewer than 500 employees) that the NFIB surveys each month for its Small Business Optimism Index.

On that front the news is anything but good. The index is down for the second straight month. Fewer small-business owners expect conditions to improve over the next half year--a drop of 18 percentage points from January. …