Categorized | economy

The small business recession continues . . .

Business closed

What recovery?

Making the rounds below the radar are the November 11 comments from the ever-wise Jan Hatzius, senior economist at Goldman Sachs, about how the current “recovery” statistics don’t include much of the small business picture, particularly small businesses shutting down.

Today’s comment attempts to gauge whether the recent official estimates might have overstated the economy’s true growth because of an inability to capture the unusually poor performance of small firms. Our tentative conclusion is that the economy might have grown between ½ and 2 percentage points more slowly than indicated by the Q3 ‘advance’ estimate of 3.5% (annualized). However, even if this proves correct and eventually shows up in the revised data, the revision process could take several years.

The “good” news is that major companies are recovering (although GM just posted a $1.2 billion loss in its 3rd quarter results — but analysts are stressing the positives!), but that doesn’t seem to be trickling down to small businesses, which are historically represented in GDP data only in later revisions — much later, critics would say.

We have argued that the weakness of the small business sector may mean that real GDP in the third quarter in fact grew more slowly than the 3.5% ‘advance’ estimate. The reason is that the GDP data may not fully capture the performance of small firms, and specifically the formation and dissolution – i.e. the ‘birth’ and ‘death – of small firms.

The bad news about the recovery for entrepreneurs and small business owners is, well, you don’t seem to have a ticket on that particular ride just yet.

Back when we were really taking a recessionary beating, I observed sarcastically that the typical economy news headline and story ran something like this:

“The good news is that the bad news is not as bad as we thought.”

Now that we’re clawing our way out of this recession, the typical economy news headline and story now runs something like this:

“The bad news is that the good news may not be as good as we think.”

Of course, the real news is that the economic news is always incomplete — the real picture only comes into focus months and years from now.

And, just in case you’re interested, here’s today’s Dismal Scientist “recession status map.” Just to see where we stand.

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