GDP numbers not so rosy for small business
The U.S.’s latest GDP figures show the economy is growing at its fastest pace in years, but small businesses are still reeling.
According to government data, U.S. 2009 fourth-quarter GDP grew at a 5.6-percent clip – the fastest pace since 2003. Government stimulus, greater exports and less-severe reductions in business inventories have been credited with the growth, but data from Sageworks, which compiles financial information on privately-held companies, paints a far bleaker picture for small businesses.
Drew White, Sageworks’s chief financial officer, said the survey results representing “tens-to-hundreds of thousands” of U.S. privately-held companies, showed a marked decline in 2009 revenues. White said 2009 fourth-quarter sales, by small private businesses with less than $10 million in annual reported revenues, were down 6.4 percent (see the full report). That was a significant decline from the previous year, when 2008 fourth-quarter sales increased 2.4 percent. Pre-recessionary 2007 figures showed an increase of 5 percent. As a barometer, White said a 3-percent growth rate was “reasonable.”
“Seeing a 6-percent decline is pretty dramatic,” admitted White, who noted it was a good indicator of the degree to which small businesses have been hammered during the current recession. “It’s almost like a 10-percent differential – huge.”
White said as long as consumers refrain from spending, small businesses will continue to remain in survival mode, which likely means reductions in overhead, such as payroll and advertising.
“Everything has gone down when revenue goes down,” said White, who pointed out that over the last four years small businesses have reduced their payrolls – as a percentage of total sales – from 19 percent to 15 percent. This despite the majority of private companies being able to reduce their debt-to-equity ratios from 2.7 percent to 2.25 percent. “You would think if they kept their employees and sales went down, payrolls as a percentage of sales would go up, well it’s actually gone down as a percent of sales and sales have gone down, so they’ve really cut.”
The government’s GDP numbers for Q4 2009, showed a nominal increase in consumer spending of 1.6 percent, which was down from 2.8 percent in the third quarter.
“They talk about taking the patient off life support, it doesn’t look like we’ve really got a healthy growth in personal consumption yet,” said White, who expected the lag in consumer spending to carry over and be reflected in 2010 first-quarter revenue results, which he added will be released in a couple weeks. “Normally you would expect consumers to pull us out of recessions and consumers would have a direct and immediate impact on small businesses, but because of the unemployment situation consumers may not be leading us out very quickly.”
White was cheered by an overall GDP growth of more than 5 percent, but said it was mainly coming from government stimulus programs that did not appear to be having a sustained economic impact, but leading to more of a W-shaped recovery.
“You get a boost of stimulus and then it contracts pretty quickly, so that we’re getting some momentum, but not a lot.”