In 2014, Tech Stocks Sparkle as Obamacare, Unemployment Loom
BY Jeremy Quittner
This year will be a mixed bag for small businesses, but the bright lights of the stock market will lead the way.
By most accounts, things are looking bright for small business owners in 2014. A raft of new economic data shows marked improvements in optimism, sales of businesses, real estate prices and access to financing, among other bellwethers.
Those factors are all key to small business growth. But the Great Recession was an unprecedented financial disaster, and the overhang will haunt us for a while to come. The following trends are likely to affect the small business economy throughout 2014.
Unemployment and Immigration
The unemployment rate recently fell to 6.7 percent. While that's a far cry from the 10 percent rate logged at the height of the Great Recession, the impact of 1.3 million people losing their long-term unemployment benefits in December will be felt immediately, economists say. That's because unemployment benefits flow directly into the economy, as consumers use the money to make everyday purchases. Absent that money, the small businesses that supply those products and services may be forced to cut nearly a quarter of a million jobs this year, the White House speculates. The Senate is trying to advance a bill that would extend unemployment benefits for three months while a long-term plan is hashed out. That bill has received considerable push-back from the House, which wants to exempt tax-payers from the individual mandate required by the Affordable Care Act instead.
Meanwhile, companies in the technology sector can't find enough highly-skilled workers to fill jobs, as the need for low-skilled workers also continues to escalate. For this reason, a comprehensive look at immigration reform, which could open up the U.S. more to non-U.S. citizens, would be welcome among many small businesses.
After rejecting the Senate's comprehensive immigration bill this summer, the House now seems poised to take up the measure and add its own imprimatur. But every day matters.
"Waiting has never helped politically, and it’s bad for the economy and jobs," says Craig Regelbrugge, vice president of government relations and research at American Nursery & Landscape Association and co-chairman of Agriculture Coalition for Immigration Reform. "In agriculture, alone, the challenges to be resolved--a mostly unauthorized workforce and a failed visa program--are twice as large and more intractable than they were 15 years ago."
The rollout of the Affordable Care Act, with its colossal technology failures, was an unqualified disaster. But more than 2 million people who previously could not afford coverage eventually signed up through the state and federal exchanges. That's a great thing. Still, the impact of Obamacare on small business owners is unclear, particularly as the Obama administration has delayed requirements for small business owners for another year. By 2015, however, small businesses with 50 or more employees will have to offer workers minimally acceptable coverage, or pay penalties.
In the meantime, many financial experts expect health care premiums to rise. Despite the bigger pool of insured people, some evidence suggests younger workers are not signing up as expected.
"This is huge time-bomb for small businesses," says Mitchell Fillet, a professor of business and finance at Fordham University in New York. "The model is built on young people paying for the pools, and insurance providers will say [to the federal government] 'Either you give us money to reduce premiums, or premiums go up.'"
Maybe it was the Federal Reserve's bond buying program, which included the purchase of $85 billion in treasuries each month, that kept interest rates low and made hay for stock market investors in 2013. Despite an improved outlook for the U.S. economy, the Fed is expected to keep rates low into 2014--making another bull market this year all the more likely.
The Dow Industrials and broader S&P indexes, both at record highs, have given people confidence in the economy again, including small business owners, says Jonathan Citrin, founder and executive chairman of CitrinGroup, a financial advisory group in Birmingham, Michigan.
"The stock market is not only a creator of wealth but of sentiment," Citrin says. "If equities continue their powerful rise, as seen in 2013, the compounding effect on small businesses will be large."
Technology startups, in particular, are telling a compelling story. One need look no further than Twitter's phenomenal initial public offering, which saw its stock price double in a single day, and its company value has leapt to $31 billion currently. But echoes of the same tale can be seen in children's flash deal site Zulily, a less well-known technology company, whose stock has more than doubled to $43 since its November IPO.
"The emotional implications of successful public offerings and rising stock prices of the tech sector are ubiquitous," Citrin says. "The spotlight is currently on tech stocks, creating significant fuel for the months to come."