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TheStreet Open House

Small Business Metrics Point to Recovery

Stocks in this article: INTU

NEW YORK ( TheStreet) -- For small business owners like Godard Abel, the co-founder and CEO of software company Big Machines, there's finally a light at the end of the down-economy tunnel.

"While we have not seen a full recovery yet, it seems that virtually all of our customers and partners appear to be planning and preparing for growth in 2011," Abel said. "We expect growth to accelerate as the entire business economy shifts back to growth mode."

Abel's outlook mirrors a pile of recent reports citing that small business employment growth and optimism have picked up slightly, although economists are unsure if this will translate to a full job market recovery soon.

Small business growth, compensation and hours worked rose in October, Intuit's (INTU) Small Business Employment Index reported. Small business employment grew by 0.2% in October -- a 2.7% annual growth rate -- meaning around 44,000 new jobs were created in the U.S.

"The annual growth for employment will not drive us back to full employment soon, but it is very encouraging," Susan Woodward, the economist who helped create the Index, said in a press release. "A double-dip recession is looking less and less likely."

Average employment growth per firm was zero for the month of October, according to the National Federation of Independent Businesses, meaning that small businesses aren't reducing headcount. Employment change has been negative for all but two quarters since April 2007, so reaching the zero level indicates that small businesses have added to private sector job growth for the first time in more than a year.

NFIB's index of small business owner optimism reached its second highest level in two years, jumping 2.7 points from the previous month to 91.7. While business sentiment appears to be moving in a positive direction, it remains at a recession-level reading.

"We're looking for a real rebound and it just isn't there," said NFIB economist Bill Dunkelberg. "There is a lot of uncertainty out there."

With small business owners concerned about economic conditions, many are wary about taking out loans to invest more capital into their companies. In response, several banks including Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) have hired a fleet of bankers to reach out to small firms and are creating new programs to increase lending.

Small technology companies are not immune to the problems facing businesses nationwide as venture capital investment -- which have traditionally fueled growth in the sector -- has slowed.

VCs invested $4.8 billion in 780 deals in the third quarter of 2010, according to the National Venture Capital Association. This represents a 31% decrease in dollars and a 19% decline in the number of deals from the second quarter.

Also, angel investing, a major source of seed and start-up capital for entrepreneurs, has dropped to its lowest level in several years, the University of New Hampshire's Center for Venture Research found in a recent report.

Slow growth among small technology companies will likely impact the health of the U.S. job market overall, said Jere Glover, executive director of the Small Business Technology Council.

"When we starve the small business tech sector, we don't get the innovations that create jobs down the road and that's a challenge for America long term," Glover said. "We've got to grow the tech sector if we expect to remain competitive internationally."

Even small tech firms that did not see dramatic declines in growth during the recession are feeling a pinch. "Companies like mine were growing 20% to 30% a year, and we're now growing in the single digits," said Joseph Schwartz, CEO of Intelligent Automation, a Rockville, Md.-based technology research and development think tank.



--Written by Olivia Oran in New York.



>To follow the writer on Twitter, go to http://twitter.com/ozoran.

>To submit a news tip, send an email to: tips@thestreet.com.

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