The good signs vs the bad signs of US economy

Good signs:

1. Home prices are up 10% from a year ago.

2. Car and light truck sales climbed 7%.

3. New jobless claims are at a 5-year low (though the unemployment rate is still a lofty 7.5%).

4. Consumer confidence is near its 6-year high (important, given that consumer spending accounts for 70% of GDP and tends to ignite corporate hiring).

5. The stock market has been bouncing near all-time highs (though not in inflation-adjusted terms).

But the question remains: Whither growth? As Forbes publisher Rich Karlgaard points out in the magazine’s latest issue, the $16 trillion U.S. economy has been growing 2% annually (net of inflation) since June 2009. “America has averaged 3% growth since World War II, but during those 68 years we have suffered 11 recessions, including the 2007-2009 whopper,” he writes. “When the country isn’t in recession, 4% annual growth is quite normal.”

Bad signs:

1.  Revenue Growth At Privately Held Companies

Small businesses—which the Small Business Administration defines as independent businesses with fewer than 500 employees—account for nearly 50% of private-sector output and two-thirds of net new private-sector jobs. Suffice to say, the growth of this group is critical to overall economic expansion.

The data paint a bittersweet picture. While profits at small firms are still growing, revenue growth has fallen off a bar-chart cliff (see Chart 1 below, courtesy of Sageworks, which tracks data on roughly 300,000 privately held companies, a vast majority with less than $50 million in annual revenue).

Chart 1: Growth Versus Profitability At Privately Held Companies

(Source: Sageworks)

In short: Entrepreneurs are learning to do more with less. They’re surviving, not thriving.

2.  Revenue Growth At Publicly Held Companies

Now look at the big boys’ top lines, and how they stack up to Wall Street’s expectations (see Chart 2, with data provided by S&P Capital IQ).

Chart 2: % Of The S&P 500 That Beat Analyst Estimates

(Source: S&P Capital IQ)

Since the second quarter of 2011, more companies have struggled to exceed analysts’ revenue targets. (Earnings targets are often easier to beat with various accounting maneuvers.) The last quarter of 2012 was a pleasant but perhaps fleeting surprise thanks to the looming expiration of the bonus-depreciation rule, which encouraged companies to load up on equipment and software before the end of the year.

Keep an eye on revenue “beats and misses” in coming quarters, and hope for more of the former.

3.  Downward Revisions Of Revenue Estimates

Finally, more analysts are revising their revenue estimates downward versus the same period a year ago. That could be a signal of more top-line troubles ahead (see Chart 3).

Chart 3: % Of Sales Estimates Lowered Over Previous 3 Months