Out of house and home

For the first time since World War II, small business people aren't driving the U.S. economy out of a recession with a surge of hiring and growth. And the prospects for such a surge this year aren't good, due in large part to the continued weakness in the real estate and housing sectors and business owners' resulting reluctance to invest in growth.

It's been nearly three years since the real estate-driven bubble in the financial markets burst, triggering the deepest recession since the Great Depression and the worst jobs environment in 30 years. Yet the jobs picture, which should be showing significant improvement based on recovery patterns over the past 70 years, is still discouraging. The unemployment rate fell 0.4 percentage points in December, but it remains high at 9.4 percent.

Even the December drop may not be permanent. December typically is a month with increased employment as retailers staff up with temporary seasonal workers, and that seems to have been the case in the 2010 Christmas season. Non-farm payroll employment rose by 103,000 workers according to the Bureau of Labor Statistics (BLS), but 389,000 more discouraged workers dropped out of the work force altogether. On the bright side, the BLS reported that December payrolls included 1.1 million more workers than in December 2009. But hiring remains anemic, especially among small businesses.

Economist Scott Shane of Case Western Reserve University argues that small businesses aren't leading the nation out of recession this time primarily because this recession was caused by crumbling real estate values. Writing in The American: The Journal of the American Enterprise Institute, he pointed out that declining home prices reduce the consumption of home owners, which hurts small businesses in particular because they are disproportionately represented in the construction, real estate, and home services and products sectors.

Another problem: Many small businesses finance their firms with a home mortgage or pledge real estate as collateral, meaning real estate problems weaken their financial underpinnings. But even other small businesses are finding it hard to raise capital, because banks, in response to the rise of non-performing real estate loans, have tightened credit standards.

All this, Shane says, has left small business owners gun-shy. Even if they could get a loan, most aren't convinced the market is ready to support growth.

Shane says no statistical data show whether Christian small business owners are making hiring decisions differently from those of other small business owners. But Don Barefoot, CEO of The C12 Group, an organization that mentors and trains Christian small business people, suggests that overtly Christian small business owners are likely to be, if anything, more cautious in hiring than other small business owners "because they don't want to put people in the position of being a 'just-in-case' hire. They feel responsible for their people and they don't want to have to lay off people."

Similarly, he adds, Christian small business owners tend to be slower to downsize when the economy is headed into a recession: "Again, they don't want to hurt people, so they're typically late to make cuts in a recession, and when they do make cuts they tend to not make them aggressively enough because they care for the people they're letting go."

Barefoot says "it's hard to criticize" that approach, but "if you lose the keys to the business, you've not been a good steward of what God has entrusted to you. It's very difficult to keep it in mind, but managing and preserving your business is what will help more people the most in the long run."

One business owner who's bucking the no-hiring tendency is Larry Diana, owner of a Greensboro, N.C., franchised staffing and employee recruitment firm. He says worker productivity across most manufacturing and service industries has reached a stressful peak, so he expects businesses to begin adding workers at the first sign that demand is picking up. Diana has added two more workers to his team of 10 to be prepared for that turn: "We pray as a team, openly, and we've been asking God to open our eyes to His direction." -Dan Reed is a journalist in Fort Worth, Texas

Bubble rubble

The recession that began in the United States in 2008 included a sharp decline in real estate values. That decline is having a big, lingering effect on small businesses:

Sources: Scott Shane, Case Western Reserve University; Bureau of Labor Statistics, National Federation of Independent Businesses; Gallup; Small Business Administration; Federal Reserve Bank