Google Follows Smaller Businesses In Belt TighteningGoogle Follows Smaller Businesses In Belt Tightening

The last month of 2008 began with the announcement that the U.S. economy is "officially" in recession. Then there's the news that job losses in small business reached a 7 year peak. But broad economic statistics only tell part of the story. Google, the poster child for unstoppable growth, is cutting back. Say it ain't so!So the announcement Monday that the economy was "officially" in recession ranks high among historical "master of the obvious" moments. Not surprisingly, sanctioning these troubled times does little to resolve this financial crisis.

In addition to losses in home value, evaporating credit, and tumbling stock prices, the downturn has cascaded into the job market. Massive layoffs in large enterprises (50,000 at Citigroup) have grabbed headlines -- more than 91,000 in the financial services industry alone. Looking across industries, the 181,671 corporate layoff announcements in Nov. represent an almost 150% increase from a year earlier and the highest mark since Jan. 2002 (the volume also increased 61% from Oct.).

Turning focus to smaller companies, the alleged creators of almost 80% of new jobs over the past 20 years, doesn't shine a ray of sunshine, but is somewhat less maudlin. According to the ADP Small Business Report, small business private employment decreased by 79,000 jobs in Nov. -- 47,000 of those in goods producing sectors and 32,000 in the service sector. This is the second consecutive monthly decline in small business employment (compared with the 4th for the overall non-farm employment).

"This is the second consecutive monthly decline in small business employment  Until recently, these small businesses were impacted less than larger ones, but today's employment decline clearly indicates that the recession has now widened to include businesses of all sizes," said Joel Prakken, chairman of Macroeconomic Advisers, an independent analysis firm.

The vanishing jobs are taking productivity with them. According to the Labor Department, productivity (the metric for rising standards of living) rose but 1.3% in the 3rd quarter. For comparison, productivity was up 3.6% in the 2nd quarter.

How these grim statistics manifest in business behavior varies widely, but let's look for a moment at Google. The unstoppable juggernaut from Mountain View may appears to mortal. Despite Marissa Mayer blowing sunshine on the Today show, revenue growth is slowing -- according to the Wall Street Journal, Google pulls 97% of its revenue from online advertising, a startling lack of diversity. Since reaching the stock price pinnacle of $741.79 in Nov. 2007, Google's shares have plummeted, closing at $275.11 yesterday.

Despite the stock slump, Google revenue is growing. And though hiring has slowed from the frantic pace of the past, new employees (including Six Sigma guru and CFO Patrick Pichette) are still coming in the door. But the search leader is narrowing its focus to put more effort into projects that perform and less into those that don't. Said Google CEO Eric Schmidt, "We have to behave as though we don't know" what's going to happen. The company will curtail the "dark matter," he says, projects that "haven't really caught on" and "aren't really that exciting." He says the company is "not going to give" an engineer 20 people to work with on certain experimental projects anymore. "When the cycle comes back," he says, "we will be able to fund his brilliant vision."

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