Small Firms to Keep Lagging Back in U.S. Expansion: Economy – Bloomberg 01-14-13

Salient to Investors:

Citigroup said small companies will be a missing element of the current US expansion as their role in driving growth continues to wane. After peaking at 55 percent in 1987, firms with under 500 employees accounted for less than 50 percent of the total workforce for the first time in 2008. Small business’ share of GDP started dropping in 2001 and is down to 45 percent in the latest available data.

Sentiment among smaller companies is at recessionary levels due in part to globalization and a lack of credit.

Nathan Sheets at Citigroup said small businesses will remain under pressure for some time to come, while large firms account for 66 percent of US exports, so benefit more from global growth and a cheaper dollar. Sheets said 20 percent of loans under $100,000 come from institutions with less than $1 billion in assets versus 40 percent a decade ago.

William Dunkelberg at Temple University said the environment for small businesses is poor as sales are weak, there’s regulatory bombardment, tax changes, economic uncertainty.

Citigroup said the number of new small firms created relative to the total number of firms has dropped from 12 percent in the mid 1980s to 8 percent.

Teresa Fort, John Haltiwanger, Ron Jarmin and Javier Miranda found that employment at startups accounts for 3 percent of the workforce, but hiring by them represents 20 percent of total job creation.

Read the full article at http://www.bloomberg.com/news/2013-01-14/small-firms-to-remain-missing-link-in-u-s-expansion-economy.html.

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