Entrepreneurial

GDP numbers not so rosy for small business

Jon Cook

Mar 26, 2010 16:24 EDT

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.”

New credit card regulations a big step forward

Marshal Cohen

Feb 22, 2010 08:57 EST

– Marshal Cohen, chief industry analyst of The NPD Group, Inc., is a nationally-known expert on consumer behavior and the retail industry. The views expressed are his own. —

These new credit card regulations should be viewed as a big step forward… and they are indeed a big step forward for consumers, especially as they are forced to confront the realities of their credit cards.

As these new credit card regulations go into effect, I hope that they will in fact help consumers manage their credit card debt more effectively. Yes, these changes are a step in the right direction, they inform and empower consumers to manage their credit better. But they still don’t replace the importance of ensuring consumers fully understand how credit cards work.

I am continually amazed at how often I learn, during the course of my research with consumers, how few truly understand that paying the minimum payment does not pay off any of their balance. These changes will enable consumers to monitor their account limits more effectively and perhaps force consumers to balance their credit cards as they might a checkbook. (Something, I’m not so sure consumers have really been forced to do, thus far.)

I think that by being forced to confront their credit card balances at point of purchase as well as being given the option to accept a ‘purchase over limit fee’ is critical in getting consumers to be conscious of their spending. Over the decades consumers have used credit cards as if they were invitations to go on shopping sprees without regard to spending limits.

These new regulations will also afford consumers a deeper awareness of bank charges. Advance notice of rates changing and the like will empower the consumer not only be more reactive to changes but proactive, too. Consumers will also have the ability to anticipate changes and seek out new or alternative banks and accounts.

In the past, consumers were made aware only after receiving their statements and in most cases, not made aware of rate changes at all. Frankly, most consumers don’t read the details of their statement and just pay off the minimum amount due without complete understanding of the statement. With these new regulations going into effect, consumers will be made aware ahead of time. This will in turn allow them to take action and take advantage of competitive offers and convert their accounts to another card or bank.

Small business confidence taking a beating

Jon Cook

Dec 9, 2009 14:48 EST

All those pundits who declared the current recession dead and buried, obviously haven’t been talking to small business owners.

Chapman University economists are the latest to announce the official end of the recession – with the codicil that the recovery will be more tortoise than hare.

In stark contrast to that report is the latest National Federation of Independent Business survey that shows small business confidence is locked in a downward spiral, that is worse than at any time during the last big recession in 1981-82.

The NFIB index showed a drop of 0.8 points in November – to 88.3 – from where it was in October and it represented the sixth time the index was below 90 since the current recession officially began 24 months ago. According to the NFIB, the index never fell below 90 at any point during the 1981-82 downturn and experienced a sharp rise at the beginning of 1983.

NFIB chief economist William Dunkelberg said the index’s current level was directly related to a lack of consumer spending. It seems not even a modest increase in Black Friday sales volume was enough to boost morale among small business owners.

“The biggest problem continues to be a shortage of customers,” Dunkelberg said in a statement. Among the 825 respondents to the NFIB survey, just 16 percent said they planned to make any capital expenditures over the next few months – the lowest total in 35 years. “Consumer spending is very weak, and there is nothing on the table in Washington to make owners more optimistic about the future.”

Dunkelberg said a continued lack of access to credit was further handcuffing small businesses and slowing job growth. In November small businesses reported a decline in average employment per firm of 0.58 workers during the prior three months, according to the NFIB. That represented a vast improvement over May’s record loss of 1.26 workers per firm, but not something that could lead someone to confidently proclaim the recession dead.

from Summit Notebook:

Where are you spending?

Ruben Ramirez

Jun 8, 2009 15:05 EDT

This week we're getting inside views from some of the biggest names in retail...from high-end fashion houses like Hermes to department store chain J.C. Penney. Optimism among those in the industry about a turnaround toward the end of 2009 springs eternal...but what are you seeing? Where are you spending? Or, are you trading down? Ditching Saks and heading to Target? Barclays retail analyst Bob Drbul says the key for consumers in the current economic environment, no matter where they shop, is "value." Click here to hear his thoughts:

Are you changing your buying behavior? from Reuters TV on Vimeo.