In many ways, the latest interest rate cuts, aggressively delivered by the federal government, still have yet to materialize into a tangible economic impact, but at least one affect is recognizable: owners of small businesses are more concerned than ever about the economy’s future. In fact, the NFIB, or National Federation of Independent Business, has published an index that measures the general optimism of small businesses which shows that feelings of well-being went down recently compared to earlier this year.
William Dunkelberg, the author of that survey, has mentioned that this level of confidence is similar to the case of 1991 wherein the federal government also made enormous cuts to the interest rates out of concern of a potential recession. Taking together, both cases show that the level of optimism present among the small businesses hit rock bottom right after the Federal announcements of a recession.
Considering all that is going on with the economy right now, are small businesses truly justified in being scared by the federal government’s announcement of a possible recession? What could that sort of thing really mean for them in the end?
A weak economy goes a long way in affecting the livelihoods of those people who run small businesses. Higher gas prices are the equivalent of major taxes and likewise serve to stress the meagre budgets of these tiny companies. Steve Preston, leader of the Small Business Administration, mentioned that for as long as energy prices continue to rise, they’ll act to diminish the optimism of smaller businesses.
Also worth mentioning is that a weakened economy goes hand-in-hand with weakened consumer demand, which goes to affect the actual sales for smaller companies. This in turn affects those companies and their desires to take risks and expand their operations.
If there is good news to be had, then it can be said that this problem seems to be limited to certain regions. In some places, business is drying up while in other locations, such as California, business continues to operate like normal and consumer demand shows no signs of slowing down. For example, Karl Paluchuk, a consultant who runs his own firm that helps small businesses establish themselves in Sacramento, California, says that his work has shown no signs of dying. He claims that his clients are all working steadily and have not cut down on any number of their employees nor have they shrunk the size of their operations.
In the end, it appears that Paluchuk and his circumstances appear to be closer to what many other small businesses are experiencing these days. In fact, certain aspects of the economy are holding up fairly well, which are job openings and plans to hire and establish new job positions as well as maintain capital spending. Compared to the decline present in 1991, hiring and capital spending were both largely nonexistent.
One other factor that can give small business owners optimism is that they often maintain a personal connection with their customers that is impossible for big businesses to accomplish, which gives them an advantage of keeping customers spending their money when they would otherwise refrain from doing so during tough times. Paluchuk comes through to offer sagely wisdom in this regard, and mentions that if you maintain the loyalty of your customers then you’ve successfully avoided recession all together.
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