Recovery Hangs in Delicate Balance

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After so much negative news regarding the economy, the last few days' reports on Warren Buffet's letter to shareholders were a breath of fresh air. A few encouraging statements from the world's most famous investor were enough to alter the rhetoric of America's media.

Buffet isn't the only one feeling optimistic these days. Well before his letter hit the mainstream media, more small business owners indicated they're feeling the same. As part of the SurePayroll Small Business Scorecard, we ask business owners to tell us if they're feeling optimist or pessimistic about the economy. This month, a whopping 71 percent report feeling that the glass is half full. We haven't seen such a high number since August of 2009.

Business owners are feeling better because their businesses are growing – that's the good news. However, they're growing without an increased workforce. They have found ways to do much more with much fewer employees. While that's good for these businesses in the long term, it's not good for the economy in the short term.

The SurePayroll Scorecard reports that hiring is down about 1 percent in February from January (down 1.4 percent for the year) and paychecks are basically flat this month (up 0.4 percent for the year).

We're in a delicate situation. We're facing some real pressures that could cause our slow-growth recovery to blow up and put us right back where we were a couple of years ago. Unemployment remains high. Increasing commodities may suck up any increases in pay we've seen over the last few months. And huge government budget cuts and layoffs — though necessary to curb deficits — threaten to worsen the slowed economy.

With less hiring, increased commodity prices and uncertainly around government actions, we will see less spending. We've already begun to see it. According to the Commerce Department, consumer spending was down in January from December and lower than estimates. Of course, with less spending we see less business activity and less hiring.

The good news in this story is that if current sentiment prevails, business owners will feel confident enough to begin to take chances — or come out of their conservative shells, if you will — and hire. They will stop relying so heavily on current employees who are making up for the slack from the extra workload with overtime shifts and bring in more hires. When that happens, we'll finally see unemployment numbers break, more quickly bringing us back to pre-recession levels. Until then, our economy hangs in a delicate balance.

Michael Alter is president of SurePayroll, America’s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University.