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Big Worries for Small Business
09/14/2011 10:54 am EST
Entrepreneurs are bracing for a major downdraft in sales, as Washington spins its wheels and markets tank, writes MoneyShow.com senior editor Igor Greenwald.
It’s very hard to do something about the economy when you’re dealing not with one economy…but, at a minimum, three.
There’s the global economy that a company like Cummins (CMI) plays in, which is benefiting hugely from the rapid development in emerging markets.
Cummins shares were up 6% Tuesday at the forefront of a relief rally after the maker of diesel engines predicted annual sales gains of 14% through 2015, after a record 2011, “despite the current uncertainty surrounding the strength of economic growth in some regions of the world.”
True, it’s a ways until 2015, and in the meantime that “current uncertainty” has discounted Cummins shares by as much as a third from the May high near $120. Still, the company (if not the stock) is undeniably doing great. Between rapid development overseas, tougher environmental regulations, and diesel’s edge in fuel efficiency, it’s riding several friendly secular trends.
In a related development, the Census Bureau reported Tuesday that real median household income declined 2.3% last year. It is down 6.4% from 2007 and 7.1% from 1999.
Also, the head of the Congressional Budget Office testified that the 2007-2009 recession and subsequent weak recovery will cost the US economy an aggregate $5 trillion in permanently forfeited output, relative to its productive potential.
But perhaps the most sobering news of all came courtesy of a notable drop in small-business confidence, keyed by wilting expectations for sales and the overall economy.
The National Federation of Independent Business said the sixth straight decline in its monthly optimism index, to a 13-month low, showed confidence had “crashed.”
In particular, sales are already trending lower for most respondents on a three-month basis, and a growing plurality expects to lose more business over the next three months. Weak sales were cited most often as the biggest problem, ahead of taxes and regulation.
“Owners appear to have lost confidence in the economy and the government’s ability to assist the recovery,” the survey noted.
Small-business owners are a notoriously kvetchy lot, and their view of the economy, like everyone else’s, has been depressed by the erratic and bearish recent market action. So far, expectations for a falloff in sales are clearly ahead of the reality.
But you do have to wonder about the source of incremental demand and the long-missing economic spark at a time when the government, financial, and construction sectors are retrenching, and while multinationals continue to do so much of their investing and hiring abroad.
And then there is the third economy that those small-business owners seldom see, the one that can no longer afford their products and services.
The Census Bureau also reported Tuesday that 15.1% of Americans lived in poverty last year, an increase of 2.6 million people over the prior year. But since the Federal poverty line is south of $18,000 for a two-parent household with one child, the proportion of Americans impoverished—in fact, if not in the eyes of the feds—is almost certainly much higher.
There one thing the multinationals, small-business owners, and poor Americans could use: more disposable income that would translate into higher consumer spending. I’ll have more on that tomorrow.
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