Ultimate Golf Seating in Elkhart, Ind., has hired five workers to expand its staff to 10 as orders increase for its custom-made golf-cart seats, which start at $745.
“Demand is starting to improve,” co-owner David Vahala said. “We’re definitely making a turn this year.”
Small businesses are bouncing back as access to lending eases and consumers ramp up purchases. This would be welcome news for policymakers struggling to spur the world’s largest economy and bring down unemployment stalled near a 26-year high, because small companies account for 60 percent of job creation, according to Federal Reserve Chairman Ben Bernanke. The Fed said Nov. 3 that it plans to buy another $600 billion of Treasurys, citing “disappointingly slow” progress in the recovery.
“The winds are changing in favor of small businesses,” said Ryan Sweet, senior economist at Moody’s Analy tics in West Chester, Pa. “It is a gradual improvement, but they’re definitely more active than they were a few months ago. As these businesses re-engage, it’ll put the recovery on a more solid footing.”
The Russell 2000 Index, which tracks the small-cap segment of U.S. equity markets, has outperformed the Standard & Poor’s 500 since Aug. 31. The outperformance signals investors’ rising confidence in smaller companies and those that cater to the sector, including Administaff, which provides human-resource services to small and midsize businesses.
A sign of improvement?
The shift is echoed in announcements by larger companies, such as business-management software firm SAP and computer giant Dell.
Charlotte, N.C.-based Bank of America last month said it plans to hire 1,000 employees in the next year to focus on companies with sales of $3 million or less.
Small-business sentiment also is healing, according to the optimism index of the National Federation of Independent Business in Nashville, Tenn., which jumped in October to a five-month high.
“This looks to us like the start of a serious improvement,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y., said in a note to clients after the NFIB report on Nov. 9. “We have long argued that a proper recovery in the broad economy requires a sustained improvement in the small-firm sector, which employs half the workforce.”
A month earlier, Shepherdson had written that September NFIB data indicated “progress is slow and small firms remain deeply depressed.”
John Ryding and Conrad DeQuadros of RDQ Economics in New York also were encouraged by the NFIB’s October report, which showed rising expectations for sales, better business conditions six months from now and improvement in hiring plans.
“Perhaps, at last, the small-business sector has a pulse, albeit a faint one,” the economists wrote in a Nov. 9 note to clients. “We expect small-business conditions to improve over the coming months.”
Walldorf, Germany-based SAP’s small and medium-size enterprise business “performed quite well in the third quarter,” co-chief executive officer Bill McDermott said during an Oct. 27 conference call with analysts.
Dell, in Round Rock, Texas, said Aug. 19 that sales to these customers grew 25 percent in the second quarter from a year ago, after a 19 percent gain the prior three months.
“Still a little gun-shy”
One source of relief for small companies is the thaw in lending, reinforced by the Fed’s quarterly survey of senior loan officers, released Nov. 8. Fed officials have held more than 40 meetings this year to try to reverse the drop in credit, and Bernanke said in an Oct. 15 speech that regulators have “seen some positive signs.”
The revival in stock portfolios also helps by giving consumers the wherewithal to spend, said Ultimate Golf Seating’s Vahala, who is setting his sights on southern California, Arizona, Texas and the Carolinas after his first year of selling luxury seats in retirement communities such as The Villages in Florida.
“More retired customers are saying, ‘Now I can buy this seat; it’s been on my wish list for some time,’ ” said Vahala, 52. He sees the possibility of adding “one or two people through the end of this year and some more next year as the sales come in.”
He and his brother, Dan, also run Vahala Foam, a 20-year-old company whose products go into car seats, recreational vehicles, boats and furniture.
Their business, which cut staff to 65 in 2009 from about 120 before the recession, has 80 workers now and spent about $100,000 on new equipment this year. Hiring and investment would have been higher in normal years, Vahala said.
Business is “coming back nicely,” he said, adding that workers have resumed 40-hour weeks after reduced shifts in 2009.
“I’m still a little gun-shy,” Vahala said. “I wonder what’s going to happen this winter, but I feel we’ll come through it. Next year will be better.”
A pickup at small companies “could be pretty dramatic for stocks,” said Joseph Kremer, director of mid-, small- and micro-cap value strategies in Cleveland for Fifth Third Asset Management, which oversees about $20 billion.
“A renaissance in small, private businesses would ripple through the economy,” he said.
Companies that sell to U.S. customers “would suddenly be seeing more growth,” while so far in the recovery, “most of what the market’s been hanging its hat on is industrial demand, a lot of it fed by foreign sales.”
Small companies still have “a lot of problems to work through, so their contribution will be more visible next year and even more noticeable in 2012,” Sweet said. “But they’re making progress, which at this stage of the recovery is very welcome because it keeps us moving in the right direction.”
