The outlook for the U.S. economy continues to deteriorate, with figures on Thursday showing the number of people filing for unemployment benefits last week climbed to 500,000, the highest level in nine months.

With the United States bleeding jobs this summer and the unemployment rate stubbornly high at 9.5%, analysts say it is small and medium-sized businesses, the lifeblood of U.S. entrepreneurial drive, that seem frozen amid economic and regulatory uncertainty.

“It’s like an eco-disaster: The smallest creatures are the most sensitive and die off the fastest,” said Andrew Busch, a global currency and public policy strategist at BMO Capital Markets. “By increasing the incremental costs of hiring employees, this discourages small firms from adding that additional worker.”

Nigel Gault, chief U.S. economist at IHS Global Insight, said private-sector job creation in August could drop to 30,000, from an already depressed 71,000 gain recorded in July.

“Momentum in private-sector job hiring is grinding to a halt,” he said.

Much has been made of the sterling earnings reports from the biggest U.S. companies, and how U.S. firms are sitting on record amounts of cash waiting to be deployed. But analysts and business leaders indicate this misses a key point, which is small and medium-sized businesses — which accounts for 65% of all net new jobs — aren’t hiring.

The financial crisis choked off bank credit, leading some small firms into bankruptcy, while survivors hung on by aggressively cutting jobs and letting inventories run down. Hiring won’t begin, observers say, until there’s evidence of an improving and resilient recovery.

But signs for now are scarce. Just yesterday, data indicated manufacturing in the U.S. mid-Atlantic region shrank in August. The report, from the Federal Reserve Bank of Philadelphia, means there is a chance the national ISM manufacturing index could drop below the 50 level, Capital Economics said — a sign the U.S. economy is on the verge of contracting as opposed to expanding.

“In order to move Main Street from a posture of self-preservation to its traditional job-creating role, more customers are needed with the will and the means to spend,” said Giovanni Coratolo, vice-president of small business policy at the U.S. Chamber of Commerce.