During the explosive '90s, M. Ann Padilla got orders for thousands of temporary office workers from such pillars of the Denver business community as AT&T (T ), Qwest Communications (Q ) International, and Adolph Coors (RKY ) But those aren't her most important clients anymore; they've cut thousands of workers locally. Now, Padilla says, small business is what's keeping her Sunny Side Inc./Temp Side going. Orders are coming from companies with 10 to 100 employees: construction contractors, distributors, nurseries. And they're picking up speed. "For the past two years, the orders were short-term," says Padilla, who owns the company. "Now they keep extending them."
You wouldn't know it from reading the headlines about corporate downsizing, but across the U.S., small business is quietly holding its own -- and in some cases even thriving. Small businesses have several things going for them. First, they're concentrated in the service sector of the economy, which is healthier than manufacturing. Second, they have picked up work from big companies that are outsourcing peripheral functions in order to save money and focus on core businesses. Third, many of the Bush tax cuts benefit small biz. Fourth, easy money from the Federal Reserve has lowered the cost of 1- to 3-year bank loans, which many small businesses depend on. And finally, small business is benefiting from the growth acceleration of the overall U.S. economy.
The good news for small business is reflected in the optimism of owners. The National Federation of Independent Business says that in August, its Index of Small Business Optimism reached its highest level since monthly readings began in 1986. Fifteen percent of small businesses expected to add employees over the next three months; only 7 percent expected to cut them. By contrast, a July survey by the Business Roundtable of some of the nation's very largest companies found that only 16 percent planned to increase U.S. employment in the next six months, while 42 percent planned to cut jobs. Says William J. Dennis Jr., a senior research fellow at the independent business federation: "Things are clearly looking better. By the end of the year, we expect very good things to be happening."
HEALTHY HEALTH CARE
Small businesses are in the right place at the right time. Take single-family home construction, which has been thriving. According to the Small Business Administration, 87 percent of employment in the sector is in companies with fewer than 100 employees. Or take ambulatory health-care services, including doctors' offices. It's the fastest-growing part of the health-care business, which is thriving as a whole. Some 58 percent of the jobs in the subsector are in companies with fewer than 100 employees. In real estate, 65 percent of all jobs are in such outfits.
Meanwhile, relatively few small businesses occupy the hardest-hit niche of the economy, heavy manufacturing. In transportation-equipment production, which includes autos, only 8 percent of the jobs are in companies with fewer than 100 employees. For primary-metal manufacturing, including steel, the figure is 12 percent. Another slow-growth sector with few small businesses: utilities, such as electricity and water companies, where just 9 percent of workers are employed by small companies.
Outsourcing also plays into the hands of small outfits. Big companies long ago began ditching functions such as maintenance, food service, and security. In recent years they've begun turning over more central functions, such as technical support, public relations, legal, and accounting, all of which have heavy small-business representation. Robert I. Fernandez, who runs a four-person Fort Worth accounting firm, says his business is booming in part because of work picked up from TXU (TXU ) Corp., the big Dallas-based electric-utility holding company, which has laid off many of its accountants in a cost-saving move. He's looking to hire another accountant to handle the influx of work. Says Fernandez: "Last year was our best year ever, and this year will surpass [it]."
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