The small-business recession isn't over yet
Goldman Sachs economist Jan Hatzius writes that bad times among small businesses, which are harder for government statisticians to measure than the doings of big businesses, probably means the economy is growing slower than the feds say it is:
We have argued that the weakness of the small business sector may mean that real GDP in the third quarter in fact grew more slowly than the 3.5% “advance” estimate. The reason is that the GDP data may not fully capture the performance of small firms, and specifically the formation and dissolution—i.e. the “birth” and “death”—of small firms ...
So what was actual GDP growth in the third quarter? Hatzius uses several different estimation measures and comes up with range from 3% down to 1.5% annualized growth. Over the coming months and years, he figures, the Bureau of Economic Analysis's official estimate will be ratcheted down into that range. I say let's keep track of this. And if Hatzius is right, somebody should give him a bonus.
The big-business/small-business disconnect is evident in the divergence between the increasingly positive survey numbers coming out of the Institute of Supply Management (big business) and the still extremely gloomy ones from the National Federation of Independent Business. It was also apparent in the October employment numbers released last week: the establishment survey, which is skewed toward large employers, showed continued improvement (still a loss of 190,000 jobs, if you believe the seasonal adjustments, but the previous two months were revised down and the general trend appears to be improving) while the household survey, which tends to bounce around more month to month but is more likely to include small-business jobs, showed a loss of 589,000 jobs, substantially worse than the monthly losses in the spring and summer.
What's causing the disconnect? I bet it's partly just that small businesses didn't lay off as large a share of their workforce as big businesses did at the beginning of the year, so they're not seeing as big a profit rebound now and they're less likely to be in the market for more workers. A lot of small-business owners depend on credit cards for financing, and banks have been awfully stingy with their credit-card customers. Government bailouts and stimulus programs are generally more likely to benefit big business than small. And it could be that uncertainty about health-care legislation and potential changes in personal income taxes weighs much more heavily on small-business owners than the big guys. Got any more ideas?
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Apropos of no-evidence-whatsoever: I don't think small businesses have as much flexibility with their workforce as larger companies. If you have a few hundred people, you can fire quite a few before you start losing any core functions*, but it's not that simple when you have five employees. Someone's still got to pick up the phones.
But if you can't cut your payroll and your cash flow is dropping, your margins go down, your productivity goes down, and you're less likely to be in a position to hire or get new credit lines. I'd have to think you'd be even more likely to see business swallowed up by larger competitors.
*And your productivity goes up, which is a neat bonus. Unless you're Casey Mulligan, in which case the workers chose to be unemployed, anyway. Lazy, lazy.)
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Here is a source that you might follow to help keep your finger on the pulse of the small business community...
http://www.vistage.com/media/confidence-index/pdf/Q3_09.pdf
I run a small business and belong to Vistage. This survey is conducted amongst 2000+ CEOs that belong to Vistage.
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I run a small business marketplace (http://www.biz2credit.com)
that connects entrepreneurs to financing options and lenders. One problem we've seen again and again is the frustration entrepreneurs feel when trying to wade through sometimes conflicting information and red tape that comes with trying to secure a small business loan.Hopefully the president's plan will make it easier for small businesses to obtain credit, but owners still need the correct information and know the right questions to ask.
Using our online system, we analyze a business's ability to repay a loan based on their cash flow and capital structure and then match the business with appropriate lenders from our large network of national, regional and community banks. We also have advice from experts and opportunities for small business owners to network with one another.
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[...] small business recession is still ongoing. (Curious Capitalist, [...]
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The government should NOT have let CIT Group fail. Though GS will make a windfall profit of a billion dollars from their failure!
Why does Time make GS the "good guy" of the banking industry?
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You bet I do. Definition of "Small Buisness" is NOT what you think it is. You and I are thinking the local automobile dealership or the local druggist or bakery. Those are not even on the radar screen... By "small" they are talking up to 100 million in volume!!!!!!!! 500 employees!
Really small business is cut off from the financial world. The REAL economy is the businesses that do $250,000, in a year up to 2-5 million....THAT is small business.
I read where the SBA programs gave 17 loans to small business in NY state in 1 year. It is Pathetic Pathetic.
Bill Gates overcharged every family and small business in America and now is giving millions to African villages!!! What about our own people? We need micro loans and small business education in every small town in America. Wake up America. WE need micro lending HERE in the US. WE need aid for farms and villages and small business empowerment. And another thing. Screw the Chamber of Commerce. That organization is simply corrupt. America first.
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Bill Gates is a profiteering pirate! I bet if his foundation would be taxed on all his investments he'd shut it down. I read a thing about him and the global banks of the world starting a vaccine futures market, and right after that he invested in pharmaceutical companies. Now that said banks got whacked in the recession its been swept under the rug.
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From where I am sitting, none or very few of the top traded stocks that are making the DOW advance have more revenue this year then they did last year.
http://keepamericaatwork.com/?cat=140
So are we saying the economy is better because of cost cutting?
Last time I looked, Small Business or Big Business needed increasing revenue to have increasing earnings.
I am not seeing it.
Regards,
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[...] also the theory, recently discussed in Time magazine's Curious Capitalist column, that the small business sector has been harder hit and is recovering slower than the economy in general...possibly pointing at continued need for additional small-biz funding relief.On to the meeting [...]
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[...] also the theory, recently discussed in Time magazine’s Curious Capitalist column, that the small business sector has been harder hit and is recovering slower than the economy in general…possibly pointing at continued need for additional small-biz funding relief. On to the [...]
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[...] business’ woes may not be reflected fully in official statistics like GDP, writes Justin Fox at Time’s Curious Capitalist blog, suggesting reports of imminent recovery may be [...]
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