Wednesday, December 2, 2009

Size Matters: Small Business Worsened in November

The Discover Small Business Watch index plummeted in November:

Economic confidence among America's small business owners plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse. The Discover Small Business Watch index fell 12 points in November to 76.5 from 88.5 in October.

"Fading confidence among small business owners could be tied to their low expectations for the upcoming holiday season, as 46 percent are forecasting decreased sales and 39 percent are expecting to hold the line," said Ryan Scully, director of Discover's business credit card. "However, we saw drops in optimism across the board, so it's hardly just one factor causing the concern."

The mood of small business owners generally has soured in November for three straight years, as economic confidence dropped from October to November in 2007 and 2008. The November 2008 index of 67.5 is the low point for the Watch since it started in August 2006.

Here are the highlights (?lowlights):

November Highlights

52 percent of owners say they have experienced cash flow issues in the past 90 days, up from 44 percent in October. Forty-one percent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 percent said they weren't sure.

53 percent of small business owners see conditions getting worse in the next six months, up from 43 percent in October; while 19 percent report that conditions are improving, a sharp decline from 29 percent in October; 23 percent see conditions as the same, and 5 percent weren't sure.
62 percent of small business owners rate the economy as poor, an increase from 55 percent in October; 30 percent rate it as fair, and 8 percent say it is good or excellent.

53 percent of small business owners think the overall economy is getting worse, up from 44 percent in October but still significantly lower than the 69 percent of owners who felt that way in February 2009, the last time the Watch index was this low. For November; 28 percent say the economy is getting better, down from 35 percent in October; 16 percent see it staying the same, and 3 percent are not sure.

Only 11 percent of Small Businesses Expecting Increased Sales This Year

Small business owners have a glum outlook on the holiday season: Only 11 percent expect to see more business this year over last, while 46 percent of them are expecting less business than last year, an increase over the 40 percent who said the same in November 2008; 39 percent anticipate 2009 sales will be about the same as last year, and 4 percent weren't sure.

Meanwhile, larger companies are stabilizing employment (courtesy Calculated Risk):

On the Challenger job-cut report from Bloomberg: U.S. November Job Cuts Fall 72% From Year Ago, Challenger Says

Planned firings fell 72 percent in November to 50,349 from 181,671 during the same month last year, Chicago-based placement firm Challenger, Gray & Christmas Inc. said today. Announcements were down 9.6 percent from October. ... The level of announced job cuts was the lowest since December 2007, Challenger said.

CR also has a post titled The Impact of Stimulus on GDP, which repeats the as-yet unknowable belief that the "recession" has ended yet sort of contradicts that belief:

The CBO released a new report today: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009. Here is their estimate of the impact on GDP:

(QUOTING FROM CBO): [The] CBO estimates that in the third quarter of calendar year 2009 ... real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA. Those ranges are intended to reflect the uncertainty of such estimates and to encompass most economists’ views on the effects of fiscal stimulus.

(BACK TO CR): At both extremes of the range, the economy would still be in recession without the stimulus (note: the BEA reported that GDP grew "at an annual rate of 2.8 percent in the third quarter of 2009" or about 0.7% for the quarter).

This is significant looking forward. The stimulus probably had the peak impact on GDP growth in Q3, and the positive contribution will diminish over the next few quarters. Without a pickup in end demand, the economy could slide back into recession next year.

By now, most readers know that there is no rule that a recession has to have declining GDP for any specific duration. In fact, from December 2007 for at least 6 months, GDP was fairly stable (though decelerating), yet the NBER dated the recession as having begun in December 2007:

The committee noted that the behavior of the quarterly estimates of aggregate production was not inconsistent with a peak in late 2007. The income-side estimate of output reached its peak in the third quarter of 2007. The product-side estimate reached a temporary peak in the same quarter, but rose to a higher level in the second quarter of 2008. (Click HERE for link.)

. If stimulus and only stimulus (including Fed money-printing) caused a couple of quarters of a move up in GDP but with continued rising unemployment, and the economy peaked early in 2010, yours truly (a certified non-economist) would doubt that the depression/recession/banana really ended in 2009.

We are apparently seeing something similar to the 1930s, in which Big Business and Big Labor did fairly well (from 1933 on) relative to Small Business and Small Labor.

Thus, small businesses can rot away while multinationals can do well enough to keep the stock averages rising. It does beat everything rotting away, but it's not a sign of a healthy situation.

Copyright (C) Long Lake LLC 2009

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