The Corner

Poor Sales Are the Main Reason Why Small Businesses Aren’t Hiring

I have often argued that most of the small business measures pushed by the Obama administration to create new jobs won’t work. For instance, the $1,000 tax credit for each new hire won’t help a firm that doesn’t have customers. A new report released by the National Federation of Independent Business shows that 31 percent of small businesses surveyed said that “poor sales” are their company’s “single most important problem.”

This also explains why making money available to small businesses for borrowing isn’t likely to help either. In fact, in its new survey of bank lending practices, the U.S. Federal Reserve Board finds that for the first time since 2006, banks are making commercial and industrial loans more available to small firms, with about one-fifth of large domestic banks having eased lending standards. Also, the study finds that for the past six months, banks have continued easing lending to large and mid-sized firms. Yet the demand for credit remains unchanged.

According to the Fed, the growing distaste for credit among small business owners has hampered the way for new purchases and investments. Borrowing money, investing, and increasing staff are things to do during good times, not bad. And businesses think the times are bad.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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