Optimism May Be Tested For Small Businesses

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Small biz optimism may be tested

The Guardian Life Small Business Research Institute finds that America’s small businesses, often called the backbone of America’s economy, have a very positive outlook for the upcoming 12-24 months. And if you believe economic scholars connected with Washington think tank The Brookings Institute, they may well need every drop of optimism they can muster.

Recession may be over but ill-effects are not
The good news from Institute fellows is that at least technically, the recession appears to be in remission. That’s great news, as is the recent announcement of 3.5% GDP growth.

The not-so-great news is that the GDP surge was helped along significantly by stimulus spending, prominently including the Cash for Clunkers program.
The second dampening factor is the lag time between when businesses begin to feel a sense of relief and when it translates into hiring – a necessary precursor to consumer feelings of well-being. A turnaround in the employment situation is not yet visible; in fact, BI Economic Studies Fellow Douglas Elliot there will be more pain before relief is evident.

“We're almost certainly out of the recession as economists think of recessions, which is to say that the economy as a whole is growing again,” commented Elliot. “But there are two critical caveats. First, most of the public thinks of a recession as ending when unemployment starts to improve and that is very unlikely to happen until well into next year. It will get worse on that score before it gets better.”

The third factor is the lack of equivalent government stimulus projects for Q4 and beyond that will immediately pump cash into the economy.

William Galston, Senior Fellow, Governance Studies, hailed the GDP increase but warned that we aren’t yet out of the woods. “Consumers are burdened with excessive debt, and disposable income will not sustain significant increases in demand for goods and services. Lending is depressed as banks and other institutions have turned cautious, and many solvent businesses are reporting difficulties in obtaining short-term financing.”

He noted that the lower dollar will help with exports, and that a period of modest growth appeared to be on the way, but not enough to fuel a hiring surge. He added that much work still needs to be done to stabilize the key housing market.

Consumers hard pressed
BI’s Karen Dynan, Vice President and Co-Director, Economic Studies, took a close look at consumers and found much to be concerned about. Suffice it to say that consumer confidence may fluctuate in the polls, but it might be consistently negative if they were to make a habit of reading Dynan’s analyses.

Not surprisingly, it all starts with high unemployment, coupled with high underemployment. As the economy gradually picks up steam, she said companies will begin their response not by hiring new workers but by increasing the hours of their existing staff – it’s far less expensive and makes it much easier to backtrack if necessary. And it is a drag on improving the overall employment situation.

The extra hours will pump cash into the economy, but not nearly at the rate as bringing consumers out of unemployment would.

Another problem for consumers is the loss of wealth most have suffered as the value of their homes and retirement accounts have declined.

The shakiness of the economy has greatly reduced consumer appetite for credit, particularly for nonessential items – quite to the contrary, they are much more likely to stash any extra cash they can muster into savings. Meanwhile, lenders are much less willing to grant credit anyway.

Both factors limit the amount of growth the overall economy will enjoy. The unemployed are a drag, and the lack of consumer spending hurts on the up side.

Small businesses seek to emerge stronger
The current economic situation offers rays of sunshine, but there are plenty of black clouds floating around to cast gloom. That’s perhaps what makes the results of the Guardian Life Small Business Research Institute’s study so encouraging.

Small businesses expect not only to survive, many expect to come out of the recession stronger – and one of the biggest concerns expressed by their owners was for the well-being of their employees – this is one sector of the economy that has no interest in contributing to the unemployment anchor that makes it seem like the economy is trying to drive forward with the brakes depressed.

"Small business owners are the backbone of the U.S. economy," said K. Rone Baldwin, EVP/COO of Guardian Life Insurance Company of America. "Their deep, intensely personal focus on customers and employees, coupled with their strong self-reliance and determination bode well for a national economic recovery."

GLSBRI measured small business attitudes in a wide variety of ways on a +10 to -10 scale, and said anything above +3 was significantly positive.

Customer appreciation and retention responses nearly made it to a rating of 6; and employee appreciation and retention was only slightly lower. Ranking employees nearly as high as customers received a score of 5.5; encouraging team spirit and helping employees have income and opportunities scored 4.3 and 3.9 respectively.

On the other end for employees, reducing hours, staffing or benefits was viewed as undesirable, albeit the scores were under -1.

At any rate, 92% of businesses polled are optimistic about the next 24 months, with 54% expecting to come out intact as is and 38% expecting to come out bigger and better.

"By closely concentrating on the needs of customers, employees and themselves, small business owners have a clear sense of priority for their time and effort," said GLSBRI’s Mark Wolf. "Skillfully balancing these three vital dimensions ultimately enables small business owners to realize their financial goals and achieve long-term success."

RBR-TVBR observation: If the economy is not yet out of the woods, then broadcasters are not either. But the stunning resilience of the small business community, if GLSBRI’s study is even remotely accurate, bode well on both ends – we refer to business growth and putting an end to the slide in employment.
A good sign for broadcasters is not only that small businesses make up a large part of the pool of local advertising clients. Many local broadcasters, perhaps even most – particularly on the radio side – are small businesses too.

It would be a great thing to watch small broadcasters, small businesses and their highly valued and committed employees take a lead role in bringing the US economy back to normalcy.

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