ANALYSIS: SMALL BUSINESSES MAY BE GROWING AGAIN

It is no wonder the recovery has been so anemic: The U.S. economy has been trying to run on one leg, according to an analysis in the Wall Street Journal today. Large businesses—the good leg—have been growing robustly for at least a year. Production is rising, sales are higher, and profits are through the roof. But the recovery missed the second leg—small businesses, which account for about half of U.S. output and jobs. Encouragingly, there are now tentative signs that the second leg may finally be healing. Since the recession ended in mid-2009, we've been relying almost exclusively on larger businesses for our growth. The problem is, large businesses have been relentlessly cutting costs, especially labor costs, to improve their bottom lines. Profits are up, but employment is flat. However, there are clues that small businesses are finally getting back on their feet. In December, employment in small firms (fewer than 50 employees) rose by 117,000, the biggest gain in nearly five years. The small-business sector has other problems, though. Borrowing is particularly difficult for entrepreneurs starting up a company. Many of them rely not on regular lines of business credit at the bank, but on personal loans backed by their home equity or personal credit cards. If we do not have many new businesses, we will not have very much job creation. Given the reliance on home equity to finance start-ups, further declines in home prices could doom us to more years of high unemployment, even if the rest of the small-business sector gets moving again.

http://online.wsj.com/article/SB10001424052748704803604576077763574674434.html