Reasons for No Hiring in Small Businesses in USA after Recession

It was really difficult for the small businesses in USA to recover after the economic downturn. However, hiring process was not performed. Some of the reasons for not hiring are given by the Journal of American Enterprise Institute.

There was a decline in house prices which decreased demand for products and services of small businesses. There was a decline of 29.5 percent in home values till the end of first quarter of 2010 from the first quarter of 2006. According to the 2009 National Federation of Independent Businesses (NFIB) survey, weak sales was considered as the main problem by 51% of small businesses. The reduction in consumer spending made the businesses not to hire new employees.

Real-estate related industries of small businesses were overrepresented and decimated by the residential housing market collapse. The Bureau of Labor Statistics data collected from the beginning of 2008 to the third quarter of 2009 showed that there was a loss of 1.8 million jobs in construction industry of small businesses.

Business credit was obtained from homes by the small businesses. A home mortgage was used as a source of finance by small businesses generally and this was reported by 16% of the small businesses according to the 2009 Gallup/NFIB survey. As a result, the balance debt would be linked with residential real estate. So the employment expansion cannot be provided by them due to this weakened financial position.

There was a rise of non-performing real estate loans. This made banks to strict their lending standards. According to the Federal Reserve’s survey of bank loan officers, from the first quarter on 2008 through the first quarter of 2010, the banking standards were tightened by many banks. As a result capital for expansion was provided for only fewer small businesses and hence there was no hiring in most of the businesses.

Residential real-estate loans were taken by many of the small businesses generally. As the home prices decreased during the recession, they were affected a lot. This indirectly had an effect on employment expansion. Due to these reasons, hiring was not continued immediately after the recession.