ADP Job Report: small biz still struggling

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

Small Business Lending: Risk Governance

The tough conditions in the credit markets require small businesses to communicate and demonstrate their credit worthiness to satisfy exacting credit risk requirements of lenders. Credit channels are open and loans are being made but strict federal regulations and heightened risk aversion by lenders places additional burdens on borrowers to demonstrate they are a good credit risk. 

“You have to be prepared,” said Robert Seiwert, a senior vice president with the American Bankers Association. “If you have a viable business model and the banker feels that this business model is going to work in this new economy, you have a very good chance of getting financing. But you have to be ready to show that it will work.”

"Small and medium-sized businesses are the lifeblood of the U.S. economy.  Their ability to prosper and grow is key to job creation to help our nation recover from the economic slowdown. But with the number of bad loans mushrooming in recent years because of the economic downturn, federal regulators have put in more stringent guidelines for qualifying for financing.", stated Ken Lewis CEO of Bank of America.

Communication with Lenders is Key

Maintaining an open line of communication with your credit providers is key.  During times of prosperity the lines of communication are open; but during times when businesses face adversity the phone stops ringing and lenders start to get nervous.  When business conditions get difficult businesses need to communicate with greater frequency and openness with their lenders.  Bankers don't like surprises.

Reason to Communicate: Risk Assessment

The entrepreneurial nature of small business owners make them natural risk takers.  They have an unshakable belief in the fail safe nature of their ideas and have strong ego identification with their business.  This often makes them blind to the risks lingering within the business enterprise.  Their innate optimism may also cloud an ability to objectively analyze business risks and prevent them from seizing opportunities as a result of poor assessment capabilities.

Conducting a disciplined risk assessment and opportunity discovery exercise will uncover the risks and opportunities present in the enterprise and in the markets that the business serves.  This risk assessment is a great opportunity to communicate to lenders and credit providers that business management are capable risk managers and are a worthy credit risk.  Lenders will be impressed by the transparency of your risk governance practice and will be more disposed to provide financing for projects and opportunities that will propel future growth.

Banks are looking for businesses that are prepared with their financial and business plans. Business owners must present a clear purpose for the loan tied to clearly defined business objectives.   The risk assessment exercise is a vital tool that assists in the construction of a business plan that builds  lender's confidence in your business.  The assessment will reveal the largest risk factors confronting your business and outline clearly defined opportunities that promises optimal returns on loan capital.

Its music to a bankers ears that clients are managing risk well and have identified the most promising opportunities  for business investments.  It is usually a recipe for success and that will allow you and your banker to develop a trusted business relationship based on honesty and transparency.

Sum2's Profit|Optimizer

Sum2 publishes the Profit|Optimizer.  The Profit|Optimizer is a risk assessment and opportunity discovery tool for small and mid-sized businesses.  It assists managers to identify and manage risk factors confronting their business. The goal of the Profit|Optimizer is to help business mangers demonstrate creditworthiness to lenders and make make informed capital allocation decisions.

Sum2 boasts a worldwide clientele of small and mid-sized business managers, bankers, CPA's and risk management consultants that utilize the Profit|Optimizer to help their clients raise capital with effective risk governance.  Subscribe to The Profit|Optimizer here: Profit|Optimizer

Risk: small business, SME, credit, bank,