Small Business In recession

In the face of a bad holiday shopping season, small businesses are aggressively slashing payroll. With this, the beaten job market is losing of its last remaining sources of strength.

On Wednesday, a report shows private industries cut 693,000 jobs in December, far greater than expected. Small businesses took 40% of the decline, according to figures from ADP Employer Services and Macroeconomic Advisers.
If this awful data would coincide with government report on December employment then it is a distinct sign that another foundation of the economy-small business- is giving in to recession.

"Everybody is trying to hang on now," said William Dunkelberg, chief economist for the National Federation of Independent Business.

"More and more of these firms are in survival mode. They kept thinking consumers will make it, but then December rolls around and sales are still not going anywhere -- in fact they're going down -- and finally (small businesses) run out of money," he said.

The increase in job cuts at small companies is worrying for the U.S. economy because these firms are the biggest source of non-government employment. If they are starting to jump up the job cuts, that could mean the worst is still to come for the labor market.
ADP's data shows small businesses employ 50 million people, compared with just under 19 million who work at large firms.

Losing jobs

The U.S. economy cut jobs every month in 2008, according to government figures, and the pace picked up in October after the financial crisis increased following the failure of Lehman Brothers in September.

Larger companies have been swifter to cut jobs, starting before the recession began in December 2007, and they continued to outpace small firms up until the last few weeks, according to ADP's figures

Big companies or those with at least 500 employees, slashed payrolls in 17 of the last 18 months. Businesses with fewer than 50 workers didn't start cutting jobs until February, and even then they moved at a slower pace.

That changed last month, when small business jobs declined by 0.56 percent, by far the biggest drop in ADP's database going back to December 2000. Large company payrolls fell by 0.48 percent, the worst since October 2001, which was at the tail end of the last recession.

"Sharply falling employment at medium- and small-size businesses clearly indicates that the recession has now spread well beyond manufacturing and housing-related activities," said Joel Prakken, chairman of Macroeconomic Advisers.