THE BLOG
01/29/2016 06:15 pm ET Updated Jan 28, 2017

Good News on Main Street: Local Business Growth Continues to Outpace U.S. GDP

Has Main Street regained its mojo? It's easy to feel like chain stores have taken over America, but a recent study indicates that local businesses, many of which suffered through the Great Recession, are once again growing. In fact, the growth rate for local businesses is outpacing the overall U.S. GDP. Sectors that were down and out during the recession - such as contracting and home remodeling - are leading the growth today.

The CAN Capital Store Front Business Index powered by PYMNTS.com found that 2014 was a very good year for local businesses, and that growth continued in 2015, albeit at a slower pace. The Index looks at the types of local businesses typically found in urban and suburban areas including building contractors, mom-and-pop retailers, restaurants, fitness clubs and professional service providers. The Index includes about 3.4 million businesses, which account for about 36% of all U.S. small businesses.
Overall, the Index grew by 3.8% on an annual basis in real terms in 2014, substantially higher than the overall annual real growth rate of 2.4% for GDP.

To determine the health of local businesses, the Index focuses on three main categories: number of new establishments, employment and wage growth. Significantly, the local yoga studios, bars, tax preparers, dentists, bakeries and repair shops included in the Index showed growth in all three areas.

Wages #1 Growth Driver

The topic of stagnant wages, which regularly dominates economic news, was apparently not on the minds of local business owners and their employees. In fact, wages were the biggest driver of growth for the Index. On average, total wages grew at 7.9%. That heady growth is expected to subside a bit, dropping to 5% in 2015, however. The big winners were building contractors and home remodelers, whose wages grew at 15% in 2014, and fitness pros, who saw wage growth of 10.5%.

Regional Superstars

Not surprisingly, local businesses fared differently in various regions across the country. The Pacific West pulled far ahead of other regions over the five-year period from the beginning of 2010 through the end of 2014. With growth at 16.6%, the Pacific West raced ahead of the Midwest, which clocked in at 10.3%.

The Pacific West also outdistanced every other region in 2014 in terms of wages and number of new establishments. The number of new establishments was up 7%, while wage growth increased 8.7%. Wage growth was over 8% in the Southwest and the Mountain region too, with the South and the Northeast coming in just below that figure. Bringing up the rear was the Midwest, which still performed fairly well with 7% growth. Wage growth trends are expected to have continued in 2015.

Recession-Proof v. Recession-Battered Segments

The industries that have had the most dramatic growth are the same ones that were beaten down the hardest during the recession.

Healthcare is historically less sensitive to economic ups and downs. During the recession, there was virtually no downturn. Since then it has seen a gradual upward trend, and it is projected to have grown at a rate of 2.5% in 2015.

If healthcare is recession-proof, contractors found out during the downturn just how vulnerable they are to economic gyrations. They weathered the steepest decline from 2007 through the first quarter of 2010, losing 21%. Recovery was similarly painful and prolonged; the segment remained flat until the third quarter of 2012.

But when recovery came, it rocketed ahead of every other local business segment. From the tail end of 2012 through 2014, building contractors and home remodelers surged 15.6%. In 2014 alone, this segment nailed down a 7.3% growth rate. The next highest growth was in fitness, which pumped up at 5.5%.

Funding Main Street

One trend that has coincided with sunnier days for local businesses is the rise of alternative finance companies. Growth, after all, often brings about the need for working capital. While the Index indicates that local merchants are again doing well, they still face long odds in getting small loans from traditional capital providers, such as banks. Banks are facing their own challenges and the types of small loans Main Street businesses need are often not profitable for them.

Still, the need for capital remains. Alternative finance companies have stepped in to fill the capital gap. A scholarly paper from Harvard Business School noted the "emerging, dynamic market of online lenders that are using technology to disrupt the small business lending market."

On Main Street, more than a few local businesses may be finding that alternative finance companies, with their flexibility and emphasis on speed, could be just what they need.

Mojo on Main Street

In a world of chain stores and online commerce, it can be easy to overlook just how important local businesses are to the vitality of their communities. The CAN Capital Store Front Business Index powered by PYMNTS.com tells a surprising and encouraging story. If the growth rate of local businesses is exceeding that of the GDP that means that plenty of people are stopping in to their neighborhood shops for the products and services they need.