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ADP Employment Report: Solid Job Growth Gathers Steam

Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).

The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur.  The Unemployment Rate still exceeds 9%.

The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.

The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.

Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.

The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.

The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.

Macroeconomic Factors

The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.

Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.

Highlights of the ADP Report for February include:

Private sector employment increased by 217,000

Employment in the service-providing sector rose 202,000

Employment in the goods-producing sector declined 15,000

Employment in the manufacturing sector declined 20,000

Construction employment declined 9,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.

The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.

Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.

As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.

The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.

Solutions from Sum2

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For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

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Risk: unemployment, recession, recovery, SME, political

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March 3, 2011 Posted by | ADP, banking, Basel II, commercial, commodities, credit, Credit Redi, economics, government, labor relations, manufacturing, political risk, politics, recession, regulatory, risk management, small business, SME, social unrest, Sum2, Treasury, unemployment, unions, US dollar | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

ADP Report: Job Creation Proceeds At Turtle Pace

Slow and steady may win the race but the pace of job creation by the US economy  continues to move along at turtle speed.  For the 20 million unemployed and underemployed people the pace of job creation remains painfully slow as revealed by ADP ‘s National Employment Report for October. During the month, private sector employment increased by 43,000 on a seasonally adjusted basis. ADP also revised its employment report for September stating that the economy lost only 2,000 jobs rather then the 39,000 it had previously reported.  Following ADP’s upward revision the private sector has produced 41,000 new jobs during the past 61 days.  For the worlds leading economy with a GDP of almost $15 trillion the lackluster growth in job creation is a troubling indicator of an anemic jobless economic recovery.

The October report arrests the September decline in job growth that reversed  seven consecutive months of positive job creation.  During that time the economy averaged employment gains of 34,000 new private sector jobs per month. This rate of job creation does little to reduce the negative overhang  a 10% unemployment rate is having on economic  growth.   A stabilized and expanding labor market is a key ingredient for a sustained economic recovery. Over the past three years the economy lost over 9 million jobs. For a robust recovery to occur the economy needs to create 200,000 jobs per month for the next four years to return the job market to its pre-recession levels.

As we reported last month the expiration of the Federal stimulus program will force state and local governments to layoff  workers.  Sluggish job creation continues to pressure depleted unemployment funds and the expiration of benefits for many of the unemployed is draining buying power from the economy.

Soft consumer demand  threatens retailers and leisure industry segments and has a spillover effect  on the housing market.  Joblessness is a principal factor in mortgage defaults and contributes to the growing inventory of foreclosed properties held by banks.  The ADP report indicates that during October the US economy shed an additional 23,000 construction jobs. It is estimated that it will take 24 months for the housing market to absorb the existing inventory of foreclosed properties. A  healthy turnaround in the construction  industry will  move in step with the improvement in the housing market conditions.

A sustained recovery will require sector leadership by Small and Mid-Size Enterprises (SME)  as principal drivers of job creation.   SME’s  sector strength has traditionally been in the construction, specialty retail, leisure and service sectors.  Among these segments  only the services sector continues to be a consistent driver for job creation.

Macroeconomic Factors

The principal macroeconomic factors impairing recovery are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments.   The results of this weeks mid-term election and the return of congress to Republican control will encourage the federal government to pursue fiscally conservative policies that will dramatically cut spending and taxes for the small businesses and the middle class.  In the short term spending cuts in federal programs will result in layoffs and cuts in entitlement programs will remove purchasing power from the demand side of the market.  It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

Highlights of the ADP Report for October include:

Private sector employment increased by 43,000

Employment in the service-providing sector rose 77,000

Employment in the goods-producing sector declined 34,000

Employment in the manufacturing sector declined 12,000

Construction employment declined 23,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 45,000 jobs created by the SME sectors reverses a decline from September and offsets the 2,000 job cuts by large companies.  The strong growth of service sector  jobs is a positive development.  However the continued softness of goods producing segments and manufacturing continues to indicate the continued decline of  US industrial capacity.  The strong rebound in services  may be the result of the expanding practice of companies utilizing outside contractors to fill human capital requirements.  These types of jobs may mask an underemployed and  transient labor pool forced to accept work at  lower wage scales.

The stock market continues to perform well.  Yesterdays QE2 initiative by the Fed to pump $600 billion into the banking system may allay bankers credit risk concerns and ease lending restrictions to capital starved SME’s.  Despite a projected GDP growth rate of 2%, ADP’s employment figures indicates that the economy continues to dwell at the bottom of an extreme down economic cycle. The danger of a double dip recession still lurks as a remote possibility.  Interest rates remain at historic lows and inflation continues to be benign but its danger grows as a weak dollar continues to flounder forcing oil prices to climb while government debt levels continue to spiral upward.  The balance sheets of large corporate entities remain flush with cash.  Analysts estimate that over $1 Trillion in cash swells corporate treasuries remaining underemployed on lazy corporate balance sheets.  The low interest rate environment  has allowed companies to pursue  deleveraging strategies  considerably strengthening the capital structure of corporate America.  To the dismay of politicians and the unemployed,  economists speculate that deployment of this cash is still a few quarters away from finding its way into the real economy.

Solutions from Sum2

Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

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Risk: unemployment, recession, recovery, SME

November 5, 2010 Posted by | ADP, banking, business, economics, manufacturing, Profit|Optimizer, SME, unemployment | , , , , , , , , , , , , , , , , | 1 Comment

NFIB Index: Small Business Optimism Improves

The National Federation of Independent Business (NFIB) has just released the Small Business Economic Trends Report for June 2010. The report published since 1973 measures small business sentiment on numerous economic and business factors that confront small businesses.

This months report indicates that small business optimism continues to improve.  The NFIB index rose 1.6 points to 92.2 recording the highest level of the index since September of 2008.

During the month seven of the 10 index components rose, with job creation and capital expenditure plans recording minuscule increases.  The Index rose above the 90 level for the first time in 21 months ending the longest period of negative sentiment in the four decade history of the index.

Though seven of the ten index components rose, small business job creation remains weak.  The  hemorrhaging  of job losses has abated employment opportunities with small businesses is not materializing.  Employment is a critical component of the Index and is understood as an important sign of economic recovery.  During the month small businesses continued to layoff workers registering a negative .5 per respondent.   This records the weakest reading for small business employment for the past three months.  The NFIB Index corroborates employment trends recently reported by ADP’s National Employment Report and the Department of Labor.  The small business sector is not contributing to private sector employment growth.  This is a troubling concern because it is widely understood that small businesses need to be a leading driver for job creation to sustain economic recovery.  As we stated last month, historically small businesses have been the major driver in job creation following recessions.  The poor job creation reading by the index  continues to be a  contra indicator of economic recovery. Small business owners are by nature and temperament optimistic and the report indicates that small businesses are still very cautious about allocation capital for jobs to meet improving business conditions.

Highlights of the Report:

  • Jobs:   9% percent of respondents reported unfilled job openings. Over the next three months, 7 % plan to reduce employment and 14 % plan to create new jobs.
  • Credit:  32% of respondents looking for financing report difficulties in arranging credit.  13% reported loans harder to get than in their last attempt. Overall, 92% of the owners reported all their credit needs met.
  • Profits: 17%of respondents reported higher earnings while 49% of respondents reported a decline in profits.
  • Prices:   14% reported raising average selling prices, and 28% reported average price reductions.
  • Capital Spending:  A net 20% of respondents planned to make a capital expenditure within the next three months, 5% planned a facilities expansion and a net 8% expect business conditions to improve over the next six months.
  • Sales: 23% of all owners reported higher sales while 38% reported lower sales.

Overview of the Report

The NFIB Optimism Index records that small business sentiment and business conditions are improving  but hint that small businesses are not fully participating in a vibrant economic recovery story.  The survey indicates that small businesses remain reluctant to create new jobs.  Until this improves, demand in the larger economy and stimulation drivers for small business growth will remain weak.

Earnings and capital expenditures tend to correlate in the absence of  subdued credit channels.  More businesses are required to self fund expansion initiatives and capital expenditures.  With earnings down small businesses spending will remain weak creating yet another headwind to market demand for goods and services.

As government stimulus programs come to a close it is crucial that small and mid-sized businesses (SME) become a lead driver in the recovery.   Though the NFIB index indicates that business conditions and sentiment is improving the financial health and overall psychology of the sector seems ambivalent to its critical role in economic recovery scenarios.

About the NFIB Index

Components of the Optimism Index include: Labor Markets, Capital Spending, Inventory and Sales, Inflation, Profits and Wages and Credit Markets.  This months survey recorded the responses of 823 NFIB members and concluded May 31.

The NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since1986. The sample is drawn from the membership files of the NFIB.

The NFIB Report can be downloaded from the Sum2 website. NFIB Optimism Index

Solutions from Sum2

Sum2 offers risk management and opportunity discovery tools to SME’s.  The Profit|Optimizer helps SME’s manage risk, devise recovery strategies and make better informed capital allocation decisions.

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Risk: SME, small business, economic recovery, NFIB

June 9, 2010 Posted by | economics, NFIB, Profit|Optimizer, recession, risk management, small business, SME, unemployment | , , , , , , , , , , , , | 1 Comment

ADP Reports Third Consecutive Month of Job Gains

ADP has released its National Employment Report for May.   Non-farm private employment increased 55,000 during  the month on a seasonally adjusted basis.   ADP also reported an upward revision of 33,000 jobs for March, bringing the number of new jobs created during the month to 65,000.  The three consecutive net employment gains reported by ADP indicates that while the number of new job creation remains modest, positive momentum is developing.

A stabilized labor market is a key ingredient to a sustained economic recovery.  The economy lost over 9 million jobs during the recession and recovery will require the creation of 200,000 new jobs per month for the next 4 years to get back to pre-recession employment levels.  Last years massive Federal stimulus programs directed funds to state and local governments to help stem layoffs. The expiration of those programs will force fiscally challenged local governments to resort to austerity measures that will require the public sector to trim jobs.

Macroeconomic factors continue to be challenging the economic recovery.  The sovereign fiscal crisis in Europe, slowing growth in China, tepid credit markets and political uncertainty counterbalance the positive effects of a stabilizing housing market, low interest rates and benign  inflation.

The economic impact of the Gulf oil spill will not be confined to the region. The local aqua-cultural industries, fishing and tourism to the region has been immediately impacted by the spill.  A prolonged duration of the event will have a profound impact on the economies of the entire Caribbean. The economies and fiscal stability of American cities such as Pensacola, Mobile, Tampa,  New Orleans and Key West are directly threatened by the unfolding events.  Cities and regions along the Texas Coast and Mexico also remain remain at risk and share the unfortunate distinction of being in the probability cross hairs of suffering extreme toxic damage as a result of a hurricane.  Shipping lanes and the closure of ports due to oil contamination could impact America’s vital agricultural industry.  The moratorium on deep water drilling has placed pressure on the oils services sector and may impact the industries long term financial health.   The impact on the price of oil and refined petroleum products remains to be seen.

Highlights of the ADP  report include:

Estimates non-farm private employment in the service-providing sector increased by 55,000.

Employment in the goods-producing sector declined 23,000

Employment in the manufacturing sector rose 15,000

Employment in the services sector rose 78,000.

Large businesses with 500 or more workers  added 3,000 jobs

Medium-size businesses, defined as those with between 50 and 499 workers increased by 39,000

Employment among small-size businesses with fewer than 50 workers, increased by 13,000

Overview of Numbers

The net gain of 52,000 jobs in the small and mid-sized enterprise (SME) sector, compared to the creation of 3,000 jobs in large enterprises is a telling statistic about the changing topology of the US job market.   During the past decade, a large proportion of job growth occurred in the public and small mid-size enterprises (SME) sector.  Large businesses have led the way in implementing lean enterprises and have outsourced and off shored many jobs and business functions to accomplish this. Job creation by SME’s during the past month represented over 90% of new job creation.  America’s reinvention and economic renaissance must be led by the SME sector.  It is vital that capital formation initiatives and credit availability is positioned to foster the growth and development of the SME sector.

This months ADP report is an indication that the US economy continues at the bottom of an extreme down economic cycle.  The danger of a double dip recession unfortunately still lurks as a possibility.  The oil spill in the Gulf of Mexico, the potential of market contagion from EU credit distress, China’s slowdown and the anemic rate of job creation in the wake of massive government expenditures and budget deficits presents continuing challenges to a sustained and robust recovery in the United States.

Solutions from Sum2

Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

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Risk: unemployment, recession, recovery, SME

June 3, 2010 Posted by | ADP, Profit|Optimizer, risk management, Sum2, unemployment | , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

ADP Reports Weak Job Growth

ADP has released its National Employment Report for April.   Non-farm private employment increased 32,000 during  the month on a seasonally adjusted basis.   ADP also reported an upward revision of 19,000 jobs for March.  The two consecutive net employment gains reported by ADP indicates that job loss may have bottomed and the slim increase in employment confirms a positive trend is underway.     The massive governmental intervention to recapitalize the banking sector and initiate stimulus programs have stabilized the economy.  The abatement of extreme risk aversion in the credit markets, favorable interest rates, improving consumer sentiment, low inflation and the dramatic rebound in securities markets are all positive growth drivers for the economy.

Highlights of the ADP  report include:

Estimates non-farm private employment in the service-providing sector increased by 50,000.

Employment in the goods-producing sector declined 18,000.

Employment in the manufacturing sector rose for the third consecutive month by 29,000 jobs.

Employment in the construction sector dropped by 49,000.

Large businesses with 500 or more workers  added 14,000 jobs

Medium-size businesses, defined as those with between 50 and 499 workers increased by 17,000.

Employment among small-size businesses with fewer than 50 workers, increased by 1,000 in April.

Employment in the financial services sector dropped 14,000, resulting in over three years of consecutive monthly
declines.

Overview of Numbers

The net gain of 32,000 jobs for the massive US economy is an admittedly weak gain for an economy that has shed 11 million jobs but it is an indication that the economy is stabilizing.

The correlation of the loss of jobs in construction and financial services is an indication of a US economy that continues to transition its dependency on residential and commercial real estate development.  The difficult conditions in the commercial and residential real estate market will continue as excess inventories brought on by high foreclosure rates continue to be worked off.   As the ADP report highlights construction employment has declined for thirty-nine consecutive months, bringing the total decline in construction jobs since the peak in January 2007 to 2,159,000.  Its clear that the US economy has lost two critical recovery drivers.

Soft conditions in the construction sector weighs heavily on small business job creation.  Most contractors are small businesses and with the anemic rate of new housing construction small business job creation will continue to be soft.

Specialty retail is another large component of the small business market.  Improving consumer sentiment will help this sector.  However small retailers have suffered massive business closures during the recession.  A robust recovery in this sector will not commence until commercial lending for start ups and business expansion becomes more readily available from the banks.

The report also indicates that the goods producing sector of small businesses shed 24,000 jobs during the month  to continue the trend in the deterioration of small manufactures.  This decline was offset by a 25,000 gain in service based jobs.  The  growth of the service sector of the US economy continues at the expense of the manufacturing sector.  The growth of small business service sector indicates that businesses continue to managed fixed costs of their business by outsourcing various services.

This ADP report is a positive indication that we may be at a bottom of the economic cycle.  Bottoms don’t mean that things are improving they indicate that conditions are not worsening.  The economic recovery is still confronted with headwinds.  The oil spill in the Gulf of Mexico, the economic and growing political instability of EU countries and the cooling off of the Chinese economy may present some challenges to a sustained and robust recovery in the United States.

Solutions from Sum2

Sum2 advocates the establishment of an SME Bank to sustain long term economic growth.  Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

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Risk: unemployment, recession, recovery, SME

May 5, 2010 Posted by | ADP, banking, credit, manufacturing, real estate, recession, small business, SME, Uncategorized, unemployment | , , , , , , , , , , , , , , , | Leave a comment

NFIB Small Business Optimism Report for April

The National Federation of Independent Business (NFIB) has just released the Small Business Economic Trends Report for April 2010. The report published since 1973 measures small business sentiment on numerous economic and business factors that confront small businesses.

This months report indicates a decline in business optimism. The NFIB index fell 1.2 points in March to 86.8 That’s up from the lows of March 2009, but has been below 90 for 18 months. The report reading is a contra indicator of economic recovery.  Small business owners are by nature and temperament optimistic and the report provides a sobering insight into the mind of US entrepreneurs and risk takers.

Highlights of the Report:

  • Jobs: After a devastating period of employment reductions, employment change per firm hit the “zero line” in March, setting the stage for a resumption in job creation. Nine percent (seasonally adjusted) reported unfilled job openings, down two points, a “negative” for hope that the unemployment rate will fall. Over the next three months, seven percent plan to reduce employment (down one point), and 15 percent plan to create new jobs (up
    two points), yielding a seasonally adjusted net negative two percent of owners planning to create new jobs, weaker than February and still more firms planning to cut jobs than planning to add.
  • Credit: Regular NFIB borrowers (35 percent accessing capital markets at least once a quarter) continued to report difficulties in arranging credit. A net 15 percent reported loans harder to get than in their last attempt, up three points from February. Eighty-nine (89) percent of the owners reported all their credit needs met or they did not want to borrow. Historically weak plans to make capital expenditures, to add to inventory and expand operations also make it clear that many good borrowers are simply on the sidelines, waiting for a good reason to make capital outlays and order inventory and take out the usual loans used to support these activities. Only five percent of the owners reported “finance” as their top business problem (up two points). Pre-1983, as many as 37 percent cited financing and interest rates as their top problem. What businesses need is sales, giving them a reason to hire and make capital expenditures and borrow to support those activities.
  • Profits: Reports of positive profit trends worsened by four points in March, registering a net negative 43 percentage points (39 points worse than the best expansion reading reached in 2005). The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending. For those reporting lower earnings compared to the previous three months (58 percent, up three points), 62 percent cited weaker sales, two percent blamed rising labor costs, five percent higher materials costs, three percent higher insurance costs, and seven percent blamed lower selling prices. Five percent blamed taxes and regulatory costs. Owners continued to reduce compensation at historically high rates, with 10 percent reporting reduced worker compensation and 10 percent reporting gains. Seasonally adjusted, a net zero percent reported raising worker compensation, only two points better than February’s record low reading of negative two percent.
  • Prices: The weak economy continued to put downward pressure on prices.  Seasonally adjusted, the net percent of owners raising prices was a negative 20 percent, one point better than last month. Plans to raise prices fell one point to a net seasonally adjusted nine percent of owners. On the cost side, five percent of owners cited inflation as their number one problem (e.g. costs coming in the “back door” of the business) and only three percent cited the cost of labor, so neither labor costs no r materials costs are pressuring owners.

Components of the Optimism Index include: Labor Markets, Capital Spending, Inventory and Sales, Inflation, Profits and Wages, Credit Markets

The NFIB Report can be downloaded from the Sum2 website. NFIB Optimism Index

The NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since1986. The sample is drawn from the membership files of the NFIB.

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Risk: sme, small business, economic recovery

April 27, 2010 Posted by | recession, small business, SME, unemployment | , , , , , , , , , | Leave a comment

Rutgers Job Study: Full Employment By 2017!

help wantedRutgers University has released a sobering study on expected recovery rates in employment levels for the United States economy.   The study,  America’s New Post-Recession Employment Arithmetic indicates that the employment deficit has grown so large that it may take until 2017 for the nation’s labor market to return to its pre-recession level.

The study, released by the Edward J. Bloustein School of Planning and Public Policy is a cause for concern.  The study reports that the US economy has shed over 7 million jobs since the recession officially began in December 2007.  This has reduced the total number of jobs in the United States by 5.8%, the largest drop during any downturn since World War II.  The authors of the study, James W. Hughes and Joseph J. Seneca, project that the employment deficit will total 9.4 million private sector jobs by the end of the year.

The study estimates that if the economy adds more than 2 million jobs annually starting next year, it would take until August 2017 – more than seven and a half years – to both recover the jobs lost since December 2007 and create new positions for the roughly 1.3 million people who join the labor force each year.

Hughes and Seneca believe that a recovery in 2017 may be an optimistic assumption.  An economic expansion that lasts for seven years is about 50 percent longer than the average for postwar recoveries.   Hughes and Seneca refer to the last ten years as “The Lost Employment Decade,” because the U.S. is on track to finish this year with 1.3 million fewer total jobs than it had in December 1999. “This is the first time since the Great Depression of the 1930s that America will have an absolute loss of jobs over the course of a decade” the report states.

The past decade has witnessed a startling reversal in economic fortunes for the US economy.   The U.S. finished the 1990s with 19  million more private sector jobs than it had at the start of the decade.   Approximately 16 million jobs were created during the 1980s.  Before the recession,  annual rate of job growth was about 1 million jobs per year, about half of the growth rates of the previous two decades.

Hughes and Seneca believe that this will force states into fierce competition to realize job growth.  States must respond by creating desirable environment for business based on costs, affordability, business climates, support infrastructure, labor force quality and tax policies.

We believe that joblessness and unemployment continue as significant threats to economic growth.   The conception of  the unemployment rate as a lagging indicator is emerging as a lead driver inhibiting economic recovery.  High unemployment continues to inhibit consumer spending and works against a rebound in the housing market and related construction industries.  Retailers are already bemoaning the bleak forecast for this years holiday shopping season.  State and local governments reeling from dwindling tax receipts are beginning to crack under the strain to fund basic community services, public schools and social assistance programs.

The structural dysfunction of the  American economy is a critical issue that must be addressed.  A concerted program aimed at the development and incubation of SME manufactures will encourage the entrepreneurial energy and kick start badly needed economic drivers  to ignite a recovery.  Sum2 advocates the adoption of The Hamilton Plan and the creation of an SME Development Bank to reestablish sustainable growth and national prosperity.

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(RU and Bruce, Perfect Together)

Risk: unemployment, job creation, SME, political stability, recession,

October 8, 2009 Posted by | associations, business, commerce, economics, government, Hamilton Plan, labor, manufacturing, poverty, recession, risk management, SME, unemployment | , , , , , , , , , , , , , , , , , , , | 2 Comments

ADP Reports 250,000 More Jobs Lost in September

job-loss-absoluteADP has released its National Employment Report for September   Nonfarm private employment decreased 254,000 during  the month on a seasonally adjusted basis.   The ADP report indicates that job loss continues to decelerate.  Though slowing, the unemployment rate continues to creep higher.  The impact of the loss of  a quarter of a million jobs is an indication that economic recovery remains sluggish and the US has a long way to go before the benefits of wide spread sustainable growth are realized.

The evaporation of jobs will continue to hinder a broad recovery in the housing market.  Yesterday I heard a speaker claim that approximately 25% of homes in Florida are in foreclosure or are behind in their mortgage payments.  It is an incredible statistic that speaks volumes about the acute systemic problems of the service based, boom/bust Florida economy.

Highlights of the ADP  report include:

Employment from July to August was revised from a decline of 298,000 to a decline of 277,000

September’s employment decline was the smallest since July of 2008

Employment losses have diminished significantly over the last two quarters

Nonfarm private employment in the service-providing sector fell by 103,000

Employment in the goods-producing sector declined 151,000

Employment in the manufacturing sector dropped 74,000

Employment with large businesses with 500 or more workers declined  by 61,000

Employment with medium-size businesses with between 50 and 499 workers declined 93,000

Employment among small-size businesses with fewer than 50 workers, declined 100,000

Employment losses among small-size businesses have diminished in each of the last six months

Construction employment dropped 73,000. This was its thirty-second consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,632,000.

Employment in the financial services sector dropped 19,000, the twenty-second consecutive monthly decline.

Sum2 advocates the establishment of an SME Bank adoption of The Hamilton Plan to address the recession.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: The Silhouettes, Get A Job

Risk: unemployment, recession, recovery, political

September 30, 2009 Posted by | banking, commerce, economics, Hamilton Plan, manufacturing, recession, SME, Sum2, sustainability, unemployment | , , , , , , , , | Leave a comment

Get Ready for New Treasury Small Business Lending Program

economic_recoveryReuters reports that the U.S. Treasury will soon launch a new program aimed at aiding small business lending, the head of the Treasury’s $700 billion bailout fund said on Thursday.

Herbert Allison, the Treasury’s assistant secretary for financial stability, declined to provide details or specific timing on the program in testimony before the U.S. Senate Banking Committee.

The US Treasury has focused for the past year on stabilizing the banks with massive capital infusions into the sector with the TARP program.  The TARP seems to have succeeded in its goal to shore up the economic capital base of bank’s but lending activity to small and mid-size enterprises (SME)  has dramatically slowed.  Capital constraints and heightened risk aversion by commercial banks has curtailed access to moderately priced credit products for many SMEs.  Credit risk aversion and the recession has hurt the sector and has contributed to growing bankruptcy rates by capital starved SMEs.

SMEs employ more workers then any other business sector demographic.  One of the reasons the recession has been so severe is due to the massive layoffs and business closures within the by SME segment.   There are approximately 6 million SMEs in the United States.  If each SME hired one person that would put a serious dent in the unemployment rate.  Some statistics on the SME demographic includes:

• Represent 99.7 percent of all employer firms.
• Employ half of all private sector employees.
• Pay more than 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than 50 percent of non-farm private gross domestic product (GDP).
• Supplied more than 23 percent of the total value of federal prime contracts in FY 2005.
• Produce 13 to 14 times more patents per employee than large patenting firms.
• Are employers of 41 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 53 percent home-based and 3 percent franchises.
• Made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.

(Source: Cornell School of Industrial and Labor Relations, Basesky and Sweeney)

The US Treasury program will target the SME segment and direct capital to help lead the economic recovery.  SMEs are the leading source of job creation, product innovation and wealth creation.  A vibrant and financially healthy  SME sector is key to any sustainable economic recovery.  This program will also help to bolster the ailing community banking sector that has seen over 95 closures by the FDIC this year.

It is critical that SMEs prepare to participate in this program.    Sum2 offers a complete product suite to help SMEs capitalize on the many opportunities economic recovery will present.  Sum2’s recently announced webinar series “Recovery Tools for a New Economy” offers SME critical management tools to profit from the emerging business cycle.

As the lending program to SME rolls out, bankers will initiate engagement process and business reviews.  They will be  looking to determine if SME managers have identified risks confronting their business.  It is incumbent on small business managers to understand how changing market dynamics and operational risk factors are impacting their business and demonstrate how they will mitigate these risk factors.

Sum2 provides a series of risk assessment products that assist companies to chart paths to profitability and growth.  The Profit|Optimizer, is a unique risk management and opportunity discovery tool that helps SMEs effectively manage the challenges posed by the recession and recovery business cycles.

Risk:  SME, recession, recovery, stimulus, commercial banking

September 25, 2009 Posted by | banking, credit, FDIC, recession, risk management, TARP, Uncategorized, unemployment | , , , , , , , , , , , , , , , , , , , , , | 3 Comments

Avoiding Bankruptcy

bankruptcyThe soft economy, the rise of inflation and the curtailment of credit is having a dramatic effect on small businesses. Annual bankruptcy rates among small businesses is sky rocketing. As the recession continues small business bankruptcy will continue to rise.

Bankers are undertaking a comprehensive review of their small business loan portfolios to enhance risk mitigation programs. They are increasingly driven to engage their small business clients to determine if they can detect any problems that is affecting their clients financial health. Poor operating performance leads to a distressed condition that can ultimately lead to insolvency.

Banks are becoming more proactive. Small business managers need to take action to uncover the factors that are damaging the business.  They must recognize the early warning signs of an emerging distressed condition to remain in the good graces of bankers by honoring the parameters of existing loan covenants.

Banks are taking the lead.  Bankers are initiating an effective engagement process by conducting business reviews  that disseminate information and provide tools to help businesses identify sources of risk in clients business operation. It is incumbent on small business managers to understand how changing market dynamics and operational risk factors are impacting their business and more importantly demonstrate a willingness to take steps to mitigate these factors

The problems posed by curtailment of credit and rising unemployment pose acute threats to small businesses. This is particularly true for businesses that cater to retail consumers. The erosion of consumer buying power due to loss of income and evaporation of customers credit lines means that they won’t be purchasing goods and services offered by small businesses.  Small business sales and profitability evaporates due to exposures to these risk factors.  Small businesses must devise strategies to address these types of risks.

Bankers need to be involved with their small business clients to determine how these risk factors are affecting business profitability and what steps need to be taken to temper their effect.  This a great opportunity for bankers to enhance their engagement level with small business clients. The exercise will preserve relationships, mitigate potential credit defaults and build the banks brand as an effective and involved partner to small businesses.

Sum2 provides a series of risk assessment products that assist companies to chart paths to profitability and growth.  Please visit our website to learn more about the Profit|Optimizer, a unique risk management and opportunity discovery tool that can help you more effectively manage the challenges posed by the recession.

You Tube Video:

risk: credit, bankruptcy, banking, SME

August 20, 2009 Posted by | commerce, credit crisis, recession, SME, unemployment | , , , , , , , , , , , , , , | Leave a comment