3Q GDP revised downward; Small employers name growth impediments

Mary Ellen Biery
November 22, 2011
Read Time: min

The U.S. economy grew a bit more slowly in the third quarter than previously estimated as businesses cut inventories, which could mean they’ll boost production next year if consumer spending stays on track. Meanwhile, a new survey of small employers found that uncertainty and lack of market demand are the major impediments to growth, pointing to a continuation of the slow decline in unemployment.

The Commerce Department said Tuesday that real GDP, or inflation-adjusted gross domestic product, increased 2 percent in the third quarter following a 1.3 percent increase in the second quarter. The revised estimate is below an earlier estimate of 2.5 percent 3Q growth, which the government said was due primarily to lower-than-estimated business inventories. 

Private businesses cut inventories $8.5 billion in the third quarter, compared with increases of $39.1 billion and $49.1 billion in the second and first quarters, respectively, leading some to speculate that businesses will need to increase production after the holidays to restock. Bloomberg reported it was the first time businesses’ stockpiles were cut since fourth quarter 2009.

Reuters reported that even with a slight revision downward, the 2.3 percent growth in consumer spending during the third quarter is the quickest pace since the fourth quarter of 2010.

Meanwhile, a new study sponsored by the National Federation of Independent Business found that small-business owners cited business uncertainty and the lack of market demand most often as the practical impediments to their growth.

The NFIB said Tuesday that nearly three-quarters of small business owners surveyed want to add employees in the next five years. “Yet, small-business owners remain reticent to hire additional people despite their expressed desire to grow,” the NFIB said. 

Sageworks Chairman Brian Hamilton, too, has noted that there could be numerous factors keeping business owners cautious in their hiring. He has pointed out that in the early 1970s, there was a 33-month lag between GDP growth and hiring. “We’re at about 18 months, so what we’re going through right now has happened before,” Hamilton said recently in an interview with The Wall Street Journal’s Opinion Journal.

 “Remember, the people who run these companies have mortgages to pay, kids to put through college, credit card debt,” he said. “They definitely got burned a couple of years ago, so I don’t know if it’s just politics that people are sitting on the fence.  I think it’s that people are a little bit nervous about what’s going to happen. However, if you look throughout American history, when revenue goes up, over time, companies do hire.”

Sageworks’ analysis of financial statements from private companies within all industries shows that revenue has increased about 7 percent so far this year, compared with a roughly 4 percent increase for 2010 and a 6 percent decline in 2009.

 “Private company revenue constitutes the largest component of GDP,” Hamilton has said. “We don’t know what will happen in the future, but we do know that revenue quality in the overall economy and in privately held companies is the most important metric to watch over time when assessing the true strength of the US economy since revenue drives most other major metrics.”

About the Author

Mary Ellen Biery

Mary Ellen Biery is a Senior Writer and Content Specialist at Abrigo.

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