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Report about the state of small businesses: yellow alert

7 December 2012

Summary:  Small businesses are an important part of the US economy.  Some indicators of their health are flashing yellow alert signals, here we look at three such. The consensus of economists remain optimistic about the economy. Just as they were in early 2008.  And they’ve never predicted a recession.

20121207-small-business

Contents

Small businesses comprise 46% of US private nonfarm GDP and 60 million employees.  Here we look at two indicators.

  1. Tales of small businesses: annec-data
  2. Wells Fargo/Gallup survey of small businesses
  3. Update: Thomson Reuters/PayNet Small Business Lending Index
  4. Update: NFIB Small Business Optimism Index
  5. Other posts in this series
  6. For More Information

(1 ) Tales of small businesses: anecdotal data

Interview of Richard Yamarone (Senior Economist at Bloomberg, 30 years experience as a Wall Street economist), by Kate Welling published at Welling ON Wall St, 30 November 2012:

The fiscal cliff actually doesn’t seem to be all that problematic. What is problematic is just that the economy is slowing and people are not coming to stores. The small retailers are saying customers are not coming into the stores. They don’t have good traffic and they’re losing a lot of sales to the internet.

The other thing that is actually quite disturbing is that if I go give a speech to 400 or 500 people in a specific city, for instance a Chamber event, and it’s a doom and gloom speech (because I am a very big bear on the economy now) this is what has been happening: Some people will always come up and say,

“Hey, you know, I agreed with this, I disagreed with that.”

But lately they’ve been adding,

“But you’re 100% right, this economy is much weaker than anybody in the press is letting you know or leading you to believe.”

.

And out of an audience of 400, I have recently been getting 25 to 40 people coming up to me after the event saying things like,

“I didn’t raise my hand because we’re at an event where my competitors are sitting across the table from me and I didn’t want to advertise this, but I’m folding my business after Christmas. My name is on top of the 100-year-old, four generation family business, or a 75-year-old, third-generation business, and I have to shut the doors. But I don’t want to do it before Christmas because then I have to answer all these questions and I’m going to be an embarrassment to my family.”

That’s a very powerful statement.

(2)  Wells Fargo/Gallup survey of small businesses

(a)  Wells Fargo/Gallup Small Business Index, 30 November 2012

Small business owners as a group are now the most pessimistic they have been since the third quarter of 2010, according to the latest Wells Fargo/Gallup Small Business Index. The Index fell 28 points to negative 11 (-11) in the post-election survey conducted Nov. 12-16, 2012. Key drivers of this decline include business owner concerns about their future financial situation, cash flow, capital spending, and hiring over the next 12 months.

(b)  U.S. Small-Business Owners’ Hiring Intentions Plunge, Gallup, 6 December 2012 – Net hiring over the past 12 months declined -7 in July to -12. Net hiring intentions declined from 10 to -4.

20121207-gallup-graph

(c) Detailed results of the surve.

(3)  Thomson Reuters/PayNet Small Business Lending Index

This is a leading indicator, although I don’t know how reliable. For more information see their website. The graph shows preliminary data for October, revised data for September, and final data for August. Roughly speaking, it has gone sideways for the past year.

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20121207-SmallBizLending

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(4)  National Federation of Independent Business: Small Business Optimism Index plunges

Small-Business Owner Confidence Plunges More than 5 Points in December to one of the lowest optimism readings in survey history“, 11 December 2012:

20121211-nfib-optimism-index

(5)  Other posts in this series

  1. Did the recession begin in July? If so, expect an ugly 2013, 2 December 2012
  2. In Friday’s job report you’ll see early signs of the robot revolution!, 5 December 2012

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6 Comments leave one →
  1. guest permalink
    7 December 2012 9:13 am

    Is there any information about whether this kind of data is a leading indicator?

    Like

    • 7 December 2012 2:28 pm

      Great question! Wells Fargo and Gallup don’t claim that their Small Business Index acts as a leading indicator.

      This post is a follow-up to claims by some economists that the US entered a recession in the 3rd quarter. So we’re looking for confirming evidence in past and present data, as well as hints about the future.

      A leading indictator has been added to the post: the Thomson Reuters/PayNet Small Business Lending Index.

      Like

  2. 8 December 2012 3:45 pm

    Reblogged this on The Small "r" and commented:
    Small business, independent proprietors, self employment: the only answer to the dearth of job growth in the U.S. But there are plenty of problems here…

    Like

  3. 11 December 2012 2:20 am

    Apparently the billionaires just aren’t buying enough at WAL-MART to kickstart the economy. Wasn’t that the theory for how the consumer economy was going to get rolling again? Because all the people who are out of jobs or taking pay cuts to make ends meet have stopped buying new cars and stuff. Surprise, surprise, surprise…

    The new norm in the workforce can be summed up in two bullet points:
    – “Do more with less”
    – “Shut up and be happy you still have a job at all”

    Those two things virtually guarantee the capitalists a workforce that is efficient, highly motivated and – above all – extremely loyal. They are going to pay a horrible price for their shortsightedness and nobody’s going to shed a single tear.

    Like

    • 11 December 2012 2:24 am

      Let me elaborate a bit on that.

      Back in the 90s I hired a team of software engineers from the former USSR. After a while, I discovered that they were very good at appearing to be programming, but not so good at actually programming. This was paradigmatic of the entire Russian economy shortly before and after the collapse of the USSR: a work-force that was very capable at looking out for its own ass, with absolutely no interest in accomplishing anything that wasn’t directly in its own benefit. It’s very hard to get an anti-work ethic like that turned around, once it’s ingrained.

      Like

  4. NFIB: Small Business Optimism Index plunges permalink
    11 December 2012 3:17 pm

    National Federation of Independent Business: Small Business Optimism Index plunges

    Small-Business Owner Confidence Plunges More than 5 Points in December to one of the lowest optimism readings in survey history“, 11 December 2012:

    20121211-nfib-optimism-index

    Like

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