Small businesses are often cited as being the engine for job creation in the United States. If that's true, then the engine seems to be running out of fuel. That's bad news for job seekers, but more broadly it's bad news for the economy in general, and for the prospect of savings accounts seeing higher rates any time this year.
A grim outlook for job creationSurePayroll, a subsidiary of Paychex that specializes in small businesses, releases monthly statistics on the conditions at clients' companies. Compiling data from 35,000 small businesses, they put together aggregates of actual payroll data and opinions about the business environment. The figures SurePayroll compiled based on August's data paints a grim picture of employment conditions, both looking backward and looking forward. According to the SurePayroll data, hiring among small businesses is down 1.5 percent over the past year. Average pay at those companies is down 1.4 percent over the same period. Furthermore, neither one of those statistics seems likely to improve in the near future. SurePayroll found that optimism among small business executives peaked in February of this year, and has since slipped steadily. Pessimistic managers are unlikely to hire, and unlikely to hand out big raises. This focus on payrolls and hiring goes to the crux of the current economic challenge. This is not a situation where mere consumer confidence will drive sustainable growth. Households are struggling under high debt levels. Wealth is down because of a weak real estate market and over a decade of disappointing stock returns. Investment income has fallen due to low interest rates on everything from bonds to savings accounts. The only potential source of spending growth is to pump new money into American households in the form of new jobs and wage growth. Unfortunately, that doesn't seem to be happening in the small business sector.
Lack of stimulusThe survey found that 82 percent of small businesses have not sought to borrow money over the past year. This too is a symptom of pessimism -- if the outlook isn't good, why try to expand? That lack of borrowing demand helps explain why deposit rates are so low: With little prospect of lending out those deposits, banks have no incentive to attract more deposits.
As for the Federal Reserve's stimulus policy -- which has also contributed greatly to the low-rate environment -- the survey results spotlight the flaw in their plan. If the is no motivation to borrow, it doesn't matter much how cheap you make the cost of borrowing.Given the lack of near-term prospects for movement in interest rates, depositors can only rely on themselves to earn better interest rates. Make smart choices among savings accounts, money market accounts and CDs, choosing the right instrument to fit your needs. Whatever the choice, shop actively to find the most competitive rate. Until small businesses get more optimistic, those tactics might be your only chance at seeing higher rates.