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Private Company Growth Rates Plummet

New data reveals that private companies are growing more slowly than at any time since November 2010.

Brian Hamilton spoke about the state of private businesses at the Harvard Club in New York City on Thursday.

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Private companies are now growing at an average of 5.4%, the lowest rate in nearly two years, according to data released Thursday by financial research firm Sageworks. Sageworks co-founder and CEO Brian Hamilton said this could be an ominous sign for an already struggling labor market.

"We're concerned," Hamilton said at the Analyzing Private Companies event in New York. "If these guys were not hiring when their sales were growing by 11%, what are they going to do when their sales are growing by 5%?."

Private companies were growing at an average of 11% in January of this year and at 8% last year, according to Sageworks. Sageworks' research is based upon financial statements filed in the past three months.

While the numbers seem to indicate private businesses are struggling, private companies are still growing more quickly than the broader U.S. economy, and net profit margins for private companies continue to climb. The average annual net profit margin for U.S. private companies is 9.1%. That's more than triple the 3.0% average of February 2010.

However, Hamilton says increases in average net profit margin "may be deceiving." He's worried that strong margins are the results of decreases in investments. He suspects companies are spending less due to the econonmy's fragile growth and uncertainty regarding fiscal policy.

"The message to Washington would be, we would love for your policies to be good, but I would rather have a marginal policy than something that's debated until the very end and thrown at people," Hamilton said.

Also at the event was Mark Jaffe, president and CEO of the Greater New York Chamber of Commerce, who said that uncertainty has also affected access to capital for businesses.

"Sometimes it's harder to find good policy and money than it is to get into Fort Knox," Jaffe said.

IMAGE: Photo courtesy Sara Baker/Sageworks
Last updated: Oct 4, 2012

JOHN MCDERMOTT is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com.
@J_M_McDermott




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