Fed: Poor Sales, Uncertainty Behind Small Firms’ Woes
Uncertainty about economic conditions and poor sales were the main reasons why small firms experienced steeper job declines than large firms during the 2007-09 downturn, according to a new analysis.
Released Thursday by the Federal Reserve Bank of New York, the article, “Why Small Businesses Were Hit Harder by the Recent Recession,” showed that between December 2007 and December 2009, jobs declined 10.4% in small firms, defined as those with fewer than 50 employees, compared with 7.5% in large ones.
“Although tightened access to credit and adverse financial conditions also constrained small firms, a more pressing factor was the decline in new investment and associated financing brought on by low consumer demand for the firms’ products and services,” according to the article.
The authors of the article determined that industry composition of job losses failed to explain the deeper job declines among small firms, as these businesses were hit harder than large ones regardless of industry.
While some small firms indeed experienced limited credit availability, this factor was a secondary driver of the difficulties they encountered, the authors wrote.