Spring Thaw to Grow US Jobs

It was a hard winter in the US. For weeks on end massive weather fronts would creep across the continent spreading ice storms, howling blizzards and a polar vortex that brought frigid misery to large swaths of the Mid Atlantic States. It seemed winters assault would never end but seasons do change and as today's temperature nears 70 spring has arrived after all. 

Mark Zandie, Chief Economist for Moody’s used the springtime analogy in a recent note to describe the recovery of the US economy from the Great Recession. Zandie notes some emerging factors that are creating positive momentum for economic growth.

• falling rate of short term unemployment signals workers are returning to the job market 
• businesses are primed for expansion with strong balance sheets, consistent profits and favorable financial and market conditions
• fiscal and regulatory uncertainty that weighed on confidence is slowly clearing up

Rising employment and greater workforce engagement is a powerful economic stimulus. More people receiving paychecks translates into the exponential growth of buying power. Retail, real estate, entertainment and hospitality industries are best positioned to benefit from the recovery. As economic health of these sectors improve, employment opportunities within these segments and ancillary industries will also expand. 

SMEs must anticipate the advent of this positive business cycle. Managers can best position their enterprises for growth by assessing what emerging market factors bear the greatest weight on their business. This allows managers to determine how to align operational capabilities with capital deployment initiatives that best address conflating market factors to serve business growth.

For example as recovery in the real estate market proceeds, new opportunities open in a multitude of related industries. The construction of high density affordable housing in urban areas is a powerful demand drivers that stimulate the need for LEED certified construction firms, inspectors, engineers, architects and building supply companies. Attorneys, CPAs, community banks, credit unions and other service providers are also beneficiaries from these emerging developments. 

As community development accelerates demand is stimulated for hospitality, grocers and numerous products and services designed to address the specific idiosyncrasies of a young urban buying demographic that is affluent and growing.  Is your firm ready to address emerging opportunities that emerging in your marketplace?

Turning business cycles create powerful macroeconomic risk factors that challenge SMEs. Rapidly changing market dynamics surface grave threats to complacent SMEs. Acute macro risk drivers force market players to compete for capital in realigning markets. SME’s must assess new macroeconomic risk factors to seize emerging opportunities. 

Get risk aware with Macroeconomic Risk and Event App (MERA) on Google Play; a Mobile Office app that runs on MS Office and Android. MERA helps SME's assess emerging risk factors to profit from the opportunities shifting markets present.

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risk: Moody’s, Mark Zandi, sme lending, job creation, market dynamics, macroeconomic risk, credit risk, LEED compliant, real estate, unemployment

ADP Reports Anemic Job Growth

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

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

ADP Reports 250,000 More Jobs Lost in September

ADP 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.

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Risk: unemployment, recession, recovery, political

Get Ready for Small Biz Stim

Reuters 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

High Unemployment Spurs SME Bankruptcies

Two news items concerning the health of of the United States economy crossed my desk today. This morning ADP published its monthly National Employment Report for June. ADP announced that nonfarm private employment decreased 473,000 from May to June 2009 on a seasonally adjusted basis. Monthly employment losses in April, May, and June averaged 492,000. That equates to over 1.5 million jobs that were lost over the past 90 days.

The trend indicates that the rate of job losses is slowing; but the massive evaporation of jobs represents a serious erosion in buying power. The United States is a highly developed consumer oriented economy that is highly dependent on the discretionary buying power of consumers. Significant loss of jobs and the severe contraction of credit availability are severe headwinds that the US economy must overcome.

In recent years US job growth was fueled by small and mid-size enterprises (SME). Home based companies, specialty retailers and service oriented companies has fueled economic expansion and job growth. No more. The trend has been decidedly reversed due to the evaporation of consumer buying power, credit and capital constraints and other macroeconomic factors that conspire against the limited balance sheets of SMEs.

The USA Today reports, “The first five months of this year have shown a 52% increase in the total number of commercial bankruptcy filings (36,106) compared with the same period last year (23,829), according to the Automated Access to Court Electronic Records. On average thus far in 2009, some 350 commercial enterprises file for bankruptcy daily — an increase of 240% from 2006.”

The two attributes that distinguish the US economic colossus are the work ethic of its people and a deep abiding commitment and belief in a entrepreneurial culture that rewards hard work and risk. It would seem that these two virtues are under siege and are being stressed to a breaking point due to the depth and pervasiveness of the global recession. One thing is clear, the indomitable spirit of the American people are being put to the test. In time this great nation of great people will rise to meet and surmount the challenges posed by this great recession. It remains to be seen however how this will change the spirit and character of the American psyche and how future generations of countrymen will view the generations that left them with a debt laden legacy.

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Risk: work ethic, entrepreneurial spirit, economic recovery, depression