You asked whether the state's small businesses are experiencing growth or decline during the current economic downturn.

SUMMARY

We were unable to locate Connecticut-specific small business economic data that encompasses the current economic downturn. Consequently, this report includes other state and national level economic data.

According to the Secretary of the State's Office business records index, year-to-date total business starts are down 10.4% from last year while business stops are up approximately 10%. A national survey of small business owners, conducted by the National Federation of Independent Business, indicates that their optimism on the economy has increased slightly for the second month in a row but continues at recession-level readings.

We have also attached a copy of general economic indicators included in the October 2008 Connecticut Economic Digest, a joint publication of the Labor and Economic and Community Development departments.

SMALL BUSINESS ECONOMIC TRENDS

Business Stops and Starts

The Secretary of the State's Office (SOTS) records business starts and stops on a monthly basis but does not record this data by firm size. According to 2006 U.S. Small Business Administration estimates, 97.5% of Connecticut's employer firms have fewer than 500 employees. Table 1 shows the number of business starts in 2008. With the exception of February to March, business starts have been steadily declining. The second quarter of 2008 recorded fewer overall starts than the first, 7,214 compared to 7,980 in the first quarter. Total business starts over the 9-month period are down 10.4% from last year.

Table 1: Connecticut Business Starts 2008

Source: SOTS, Connecticut Business Starts Index

Table 2 shows the number of business stops for the current year. According to an August 5, 2008 SOTS press release, Connecticut had a record number of business stops for the second quarter of 2008. The 2,999 stops were the highest number for any first or second quarter since at least 2000. In total, business stops are up about 10% when compared to the same 9-month period last year.

Table 2: Connecticut Business Stops 2008

Source: SOTS, Connecticut Business Starts Index

Small Business Optimism Index

The National Federation of Independent Business, a nonprofit, nonpartisan small business association, conducts monthly and quarterly surveys of its members to track small business economic trends. Its economic trends reports include an “optimism index” based on 10 survey components (e.g. outlook for expansion, sales expectations, credit conditions expectations, hiring plans). The October 2008 report, for surveys conducted in September 2008, indicates that while the index is continuing one of the longest strings of recession level readings in the history of the survey (started in 1973), it increased slightly for the second month in a row. The September survey also reported the following small business economic trends:

● Over the next three months, 12% of firms reported plans to create new jobs (down from 13% in August) and 10% plan workforce reductions (unchanged).

● The frequency of reported capital outlays over the past six months fell two points to 52% of all firms. A relatively weak number of respondents, 21%, plan to make capital expenditures over the next few months.

● 12% of owners reported gains in inventory stock while 23% reported inventory reductions.

● The percent of owners reporting higher average selling prices dropped six points to a net 20% in September. This is down 12 points since July but continues to be one of the highest readings since the early 1980s.

● The percent of owners reporting earnings gains decreased by 5 points.

● 36% of firms reported having all of their credit needs met in the second half of September, compared to 31% in the first few weeks of the month.

Connecticut Small Business Indicators

The U.S. Small Business Administration's Office of Advocacy publishes yearly reviews of how small businesses (defined as those have fewer than 500 employees) fared in their respective states and how they contributed to their state's economic condition. Connecticut's economic profile contains sections on the state's number of small businesses, industry composition, small business income, banking, women and minority business ownership, and employment. The most recent report was published in 2007 and uses 2004-06 data. Among other things, it includes the following the small business indicators:

● In 2006, approximately 97.5% of the state's employer firms (96,600) had fewer than 500 employees. Self-employment (incorporated and unincorporated) totaled 190,400 in 2006, an increase from 180,700 in 2005. Non-employer firms totaled 252,000 in 2005, an increase of 2.5% since 2004.

● An estimated 9,516 new employer firms were created in 2006, 3.2% more than the number created in 2005. Business terminations increased from 11,100 in 2005 to 11,200 in 2006.

● Business bankruptcies increased from 156 in 2005 to 219 in 2006.

● Non-farm proprietors' income, which is a share of small business income, increased 3.9%, from $18.1 billion in 2005 to $18.8 billion in 2006.

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