The Effect of the Sequester to Small Businesses

The sequester seems to be the latest buzzword, but not all of us can afford can take time away from our busy schedules to truly comprehend the ramifications of the latest self-inflicted wound to our economy. Unfortunately, the latest round of government spending cuts may have a significant impact on the U.S job market in the near future. Analysts, pundits, and economists alike are all scouring their sources to gather data that indicates which macroeconomic developments that may transpire within the next few years.

Impact on Jobs
This recent unemployment report doesn’t provide any substantial evidence on significant effects the sequester has had on small businesses thus far. The most recent monthly report from the U.S Labor Department shows that 11,000 government jobs were cut in April, down from 16,000 in March. However, the employment rate for government workers during April 2013 was around 3.3 percent, down from 3.7 percent in April 2012. Around 75 percent of the government jobs that were cut in April were attached to the federal government. The private and public job markets have not felt the effects of the sequester just yet, and unemployment remains stagnant at 7.6 percent.

The economy added over 165,000 jobs during the month of April. There were over 30,000 temp jobs, over 40,000 hospitality jobs, and over 25,000 retail jobs added to the economy in April. The volume of new temp positions may be an indicator that employers plan to hire more workers in the near future. Some economists credit the solvency of big businesses in offsetting the struggles that small business must endure. Businesses have yet to begin laying off employees despite the declining growth of the economy or the current sequester.

Impact on Business
Some analysts are speculating whether or not employees’ hours are being reduced because of the sequester, the holiday season, or even the weather. Many believe that if the economy picks up momentum in the second half of the year, new job growth in the private sector and an improved housing market may be able to offset the negative impacts of the sequester. Small businesses have accounted for 65 percent of the new jobs in the U.S over the past 17 years. Since June 2009, firms with fewer than 500 employees have actually added more than twice as many jobs as firms with over 500 employees.

Macroeconomic advisors and the Congressional Budget Office estimate that the sequester will reduce the GDP by 0.6 percent by the end of 2013. Ultimately, the sequester will eliminate around 700,000 jobs, increasing the unemployment by 25 basis points. The sequester is expected to eventually hamper the invaluable economic growth that the small business sector has provided. Small business contributed 194,000 jobs in January 2013, while the larger businesses actually cut about 2,000 jobs.

As a result of the sequester, the SBA will lose $60 million from its $1.1 billion FY 2013 operating budget. Specifically, the budget cuts will reduce lending authority, services for businesses, lending in the private sector, and other initiatives that are vital to the success of the SBA as well. The contracts and loans available to small businesses are the areas of the annual SBA budget that will be most significantly impacted by the sequester. It’s important to note that small businesses usually have a harder time in a struggling economy. These smaller enterprises can rarely withstand a 10 to 30 percent reduction in their revenues.

This article was written together with Richard Craft, a finance writer who loves sharing information here on INFOtainment News. They write this on behalf of RG Brenner. Check out their website today for more information on their website at http://www.rgbrenner.com!