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Jobs recovery: Wait till next year

The mass-bloodletting has slowed, but small companies are still cutting every worker they can spare off their payrolls.

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By Emily Maltby, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- The days of cataclysmic layoffs may be waning, but companies are still cutting every position they can spare. Employment at America's small businesses, those with less than 50 employees, dropped by another 138,000 workers in July, according to estimates released Wednesday by payroll processor ADP (ADP, Fortune 500).

July's report marks the 18th straight month of declining small business employment. The rate of decline has slowed, and economists see an end ahead, but workers are in for a few more months of turmoil before hiring picks up.

"The labor market, like the overall economy, shows signs of beginning to stabilize," said Chris Varvares, president of Macroeconomic Advisers, ADP's partner research firm. "Our expectation is that job losses will dwindle toward zero by year end."

Small business employment is a closely watched indicator because small companies tend to be more responsive than larger ones to economic changes. They're typically the first to hire again when spending picks back up.

Dorothy Gonzalez, owner of A-Plus Counters in Clearwater, Fla., has seen that dynamic play out in her own business. By April of this year, she had already made massive cuts to her payroll, scaling her staff of 60 down to 12. Though the worst of her layoffs are past, she's still cutting. In the past few months, Gonzalez has had to let three more employees go.

"More retail people are coming in, but in the new construction market, we haven't seen any response yet," said Gonzalez, whose company manufactures countertops. "Our major plan is to adjust to what the economy is, through competitive pricing. But everyone's bidding, trying to get the job, and even if consumers are spending, they're not overspending."

Looking for a reprieve, Gonzalez applied last month at her bank for an America's Recovery Capital (ARC) loan. Backed by the Small Business Administration, ARC loans are a stimulus measure that lets business owners take out small, interest-free loans to temporarily make payments on other debt. Gonzalez says the ARC loan would help stabilize her business by covering payments on commercial vehicle loans, freeing up that cash for other purposes.

Small companies -- and their workers -- have been hit by an economic double whammy. As the recession cut into their sales, the bank loans and credit lines that some companies relied on to weather slow periods have been disappearing. As a result, many small firms are falling behind on debts or going under.

In a recent study of businesses with annual revenue below $10 million, credit-rating agency Experian found that 24% have suffered a negative financial event within the past two years, such as a collection notice, tax lien or significantly overdue (more than three months late) debt payment. The situation creates a chicken-and-egg problem: As default rates climb, banks pull back on their small business lending, but without those credit lines, more companies teetering on the brink are pushed over.

Breaking that cycle could help speed up the recession's end.

"One of the things we know is that access to credit has been difficult to small businesses," said Varvares of Macroeconomic Advisers. "As credit becomes available, we may see a more rapid rate of recovery."

An ARC loan would certainly help A-Plus Counters recover faster, but even without it, Gonzalez is cautiously optimistic that her company -- and its workers -- have been through the worst.

"If business keeps going the way it has recently, I don't anticipate having to scale back more," she said. "But what we always have to do is look at the overall business and [pick out] the employees that have the skills and abilities that we simply can't lose." To top of page

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