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Financial Times: Staff in small US businesses still being cut

Washington, D.C., May 12 -

By Hal Weitzman; Financial Times

Small businesses in the US are still cutting jobs, even though they are more optimistic about economic conditions than they have been in two years, according to a survey released yesterday by the National Federation of Independent Business, a lobby group.

The sentiment among businesses with fewer than 500 employees helps explain why unemployment rates in the US remain stubbornly high. Although privatesector companies created 231,000 jobs last month - their best performance for four years - the unemployment rate rose slightly last week to 9.9 per cent, while long-term joblessness is increasing.

While much focus in recent months has been on the renewed profitability of big companies - many of which have started to recall workers as their bottom lines have been boosted by overseas sales - small businesses are particularly important to the US employment picture, making up 99 per cent of all employers in the US. Excluding public spending, small businesses account for half of US gross domestic product, according to the Small Business Administration, a federal agency.

The NFIB survey found that although overall small business confidence rose 3.8 percentage points to a reading of 90.6 last month from March, the average employment per company was -0.18, indicating that companies are still in job-cutting mode. Since July 2008, employment per company has fallen steadily each quarter, logging the largest reductions in the NFIB survey's 35-year history.

William Dunkelberg, NFIB chief economist, said the increase in small business optimism was modest and had to be balanced with their continued caution in hiring. "This could be the start of small business confidence turning the corner, but then I keep thinking we have a start and it turns out not to be," he said.

The report also suggested that accessing credit is not as serious a problem for small businesses as many in the sector have suggested. The NFIB said although 31 per cent of small businesses that regularly borrow continued to report difficulties in arranging credit, 91 per cent of respondents said that either all their credit needs were currently met or they did not want to borrow.

Those data run contrary to the consensus that credit is unavailable for many smaller companies. In response to those concerns, Barack Obama, US president, last week unveiled a $30bn (€23bn, £20bn) support programme to unfreeze credit for small businesses by providing support to small and medium-sized US banks to encourage them to increase local lending.

The survey was based on the responses of 2,176 NFIB member companies.