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U.S. Sees Modest Growth, Small Businesses Face Jobless Recovery

As several reports show a slight improvement in the economy, small businesses remain cautious though the franchise sector is the bright spot.
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The overall U.S. economy sees modest growth in May, driven by housing and manufacturing improvements, but small businesses remain cautious, according to multiple reports this week.

The economy adds 175,000 jobs in May, more than economists expected, but the growth is still nothing to write home about. The unemployment rate ticks up slightly to 7.6 percent in May, from 7.5 percent in April, the U.S. Bureau of Labor Statistics reports Friday. 

Employment improves in retail trade, professional and business services, and bars and restaurants in May.

Meanwhile, job gains for March and April have been revised down by a combined 12,000 jobs. March's growth has been revised to 142,000 from 138,000 jobs, and April's to 149,000 from 165,000. Over the prior 12 months, employment growth averaged 172,000 per month, the Labor Department says.

A separate report by payroll processor ADP, which focuses on small business, finds that companies with fewer than 49 workers have added 58,000 jobs in May, below the average of 65,000 jobs per month over the last six months. Companies with one to 19 employees account for 64 percent of the growth in May, or 37,000 jobs, according to the ADP National Employment Report.

Small-business hiring gains in May show progress since April, when small companies added 49,000 jobs, but are well below the 72,000 new jobs added in March, ADP says.

Improvements in housing and manufacturing are helping the economy grow, albeit at a tepid rate, the Federal Reserve's most recent Beige Book survey finds. But it's not enough to make a meaningful difference in job growth, observers say. The job market has been weighed down by various fiscal concerns ranging from tax increases to government spending cuts. Small businesses, in particular, remain pessimistic that the economy is really on the rebound.  

Related: Entrepreneurs See Brighter Days for Their Business, Not the Economy

"We're currently in a recovery; it's just a jobless recovery," says Michael Alter, chief executive of SurePayroll, a payroll processing company that focuses on small businesses.

Small businesses today are doing more with fewer people, Alter says, by using technology and leveraging freelancers to fill in the gaps. He believes hiring won't get a real jumpstart until demand increases significantly or there are specific needs to fill.

"We just aren't seeing enough growth to justify [major] hiring," Alter says.

Separately, a report Wednesday by the International Franchise Association says the franchise sector will continue to outperform the economy as a whole and grow at a slightly faster rate than other businesses in 2013. Nonetheless, the IFA remains concerned that franchise development is being impeded by the "uneven economic recovery and the onerous public policy environment facing our members and the small-business community," says Steve Caldeira, president and chief executive of IFA, in a statement. 

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