Large Companies Recovering - Small Businesses Still in Recession

Large corporations are recovering from the recession and seeing sales increases.  So far, most small businesses are not. 

The chart below shows the 2010 Q2 year-over-year sales growth for the S&P 500 (a large company stock index) compared to similar data for small businesses.  The small business data comes from Intuit Trends, a small company index constructed by Intuit Corporation using financial data from roughly 135,000 small businesses. 

  
The data is pretty striking.  The S&P 500 saw a 10% increase in Q2 year over year sales while the Intuit Small Business Trends Index shows a 19% decline. 

In response to the sales declines, the Intuit Trends Index shows small businesses cut expenses by 27%.  The good news is the cost cutting resulted in small businesses being able to improve their margins and profits in Q2 versus a very bad Q2 in 2009.

Large companies have been able to grow revenues primarily because of their exposure to stronger international markets.  They also have better access to credit and are benefiting from global stimulus spending – most of which flows to large corporations. 

The implications of this data are pretty clear.  The small business economy is still in recession and will continue to be until small business demand picks up. 

Small businesses are a key source of U.S. jobs.  As long as they are in a slump, job growth will be weak and U.S. unemployment will remain high.  

Notes on the data: 

The S&P 500 data is from Fidelity’s Q2 Earnings Update.

The Intuit Trends data is created from online users of Intuit financial products.  The index is not statistically representative of the overall U.S. small business sector.  But we consider it strongly “directionally correct” because it is based on actual financial data from a large number of small businesses.  Access to the index is free, but registration is required.

Disclosure:  Intuit is an Emergent Research client. 

Comments

[Mack Payne]

Small businesses need customers with a little disposable income. Guess where those type customers come from? They are everywhere and if they have a little extra jingle in their pockets they will sooner or later spend it. What is the easiest and quickest way to get a little extra jingle in their pockets? You guessed it - lower taxes. Despite Democratic rhetoric it works every time.

[Think and Grow Rich Book]

Many big companies have benefitted from the stimulus, either directly or indirectly. Most small businesses are still so scared they're in a holding pattern as are their customers. Almost every major modern day economist agrees the Great Depression should never have lasted as long as it did but for the fears held by most.

[Diane Greenburg]

I completely agree with the most recent post - the small firms spark growth locally and advance from there, while still benefiting the locals. Wonder what kind of spin the govt will put on this one... numbers just don't lie.

[Business Money Today]

While big businesses are getting all the benefits from stimulus and spending - it is small firms that will pull us up into stronger economic growth - growth that starts in local communities and spreads out from there. Shame that we have our priorities backwards here!

[Small Business Answering service]

Having a phone answering service is definitely something every small business owner should consider. Many companies have proven that it may boost and increased business sales.

[steve]

Exposure to faster growing international markets is a key reason. Another is product and service offering diversity.

[cynthia kocialski]

Any conjuctures as to why the difference? A venture capital firm told me that while the companies in their portfolio were generating revenue, sales was almost exclusively coming from outside the US. Possibly small business generate the bulk of the revenue from local markets, whereas S&P500 companies have a global presence.