Small Businesses vital to United States' recovery after election says Coface

Coface economist, Christine Altuzarra, assessed the outlook for SMEs in autumn 2012. She concluded: “Since 2010, SMEs have created jobs, have managed their finances and investments prudently and have adapted to economic turmoil. They seem to be in a stronger position today to play a full role in the recovery, even if this will remain weak.” However she warned that this could be undone by the political polarisation over the raising of the country’s debt ceiling – the USA could be in technical default in February 2013 - which, if not resolved could lead to another recession.

Grant Williams, Risk Underwriting Director at Coface UK commented: “The US represents the UK’s largest export market, accounting for 27.4% of our non-EU export trade, so this could make worrying reading for UK businesses, particularly if Tuesday’s election does not provide the necessary political momentum to tackle the country’s deficit. According to HMRC, UK exports to the US fell by £231.5 million in August 2012, largely driven by a fall of £112.7 million in vehicle sales, which reflects the concerns about the US recovery highlighted in the report. Whoever wins the election will need to act quickly to restore small business confidence in the US or the repercussions will be felt across the Atlantic.”

The Coface report reveals the important role of SMEs within the US economy, particularly in job creation, and examines the important role they will play in the recovery, as well as the challenges facing the sector. It makes the following points:

• SMEs are an essential source of employment in the US, employing 49% of the national workforce, particularly in the construction, manufacturing and health sectors. While the former two were hit particularly hard in the credit crisis, the SME sector remained at the forefront of job creation. Between March 2009 and March 2010, 394,000 new SMEs created 2.3 million jobs while the US private sector as a whole saw a net loss of 1.8million jobs.
• SMEs that do export saw sales increase by 37% in 2005-9, compared to a decline in sales by SMEs operating wholly in the domestic market. President Obama’s National Export Initiative launched in March 2010 aims to encourage companies, especially SMEs, to develop their export trade through measures such as business loans. The Export - Import Bank of the United States predicts that in 2015, it will have supported $58billion of SME export contracts.

While the rate of export growth slowed to +5% in the first eight months of 2012 (compared to +14% in 2011), Coface does not expect a significant slowdown in 2013 because of the relative buoyancy of the economies of Canada, Mexico and other emerging countries. However, this progress could be undermined by an intensification of the Eurozone crisis affecting US direct and indirect sales.

SMEs are adopting a wait and see policy towards investment. A September 2012 survey by the National Federation of Independent Business has shown a decline in SME confidence, largely because of the political situation with just 7% of businesses saying that they felt this was a good time to expand, compared to 14% in 2007.