No matter how many times President Obama shows economic graphs displaying the recession is over, most business owners can’t believe it. They feel stuck in the Fall of 2008 with time standing still. This is not unusual. Economic recoveries have always been long, drawn out affairs and this one will be no different. If technically, the recession was over in June 2009, why don’t small business owners feel it yet? With inflation low and short term interest rates near zero, this should be a good time for businesses to grow. So after 19 months, why do only the economists feel the recovery?
What has to happen for small business owners to feel the recession is over? Here are the first three areas where progress needs to be made:
1. The value of their stock portfolio. As a leading indicator in the recovery, it seems that the stock market has been doing its fair share. With the Dow Jones over 12,000, it is above the pre-recession close of 2007. But why don’t business owners feel richer? It’s because the full stock market of large and small U.S. stocks (measured in the Wilshire 5000 index) is still down 14 percent off its high. Investors have still lost $1.8 trillion over the last two years. If consumers don't feel wealthy, they don't spend their money. This is important since consumer spending accounts for 70 percent of the overall economy.
However, with wealthy shoppers, a certain frugality fatigue has set in. This group is buying again, hiding the fear of less affluent Americans from doing the same. If the overall market continues to inch up, consumer spending will result in rising sales of small business products and services.
2. The value of their home and business. The value of the two largest assets in their lives remains at historic lows. This is a result of the still general lack of capital in the broader market. Until banks start lending regularly, there won't be money to buy homes or build businesses. As a result, the largest assets and income vehicles in a small business owner’s life will remain stagnant. Post recession, banks always become risk adverse, but the federal government needs to force banks who received TARP money to lend and not just retain money to boost their corporate profits.
3. The job market. This is also related to bank lending and home values. The economy is stuck at 9 percent unemployment and a short term resolution does not seem likely. Although people are cheaper than ever, many business owners do not have enough confidence or capital to invest in hiring someone. The federal tax breaks implemented in 2009 in hiring new workers were a start, but they need to be bigger for a larger impact. President Obama can go further by eliminating the “Employer Matching Federal Withholding Tax” for companies with less than nine people. This will encourage the more than 4 million businesses that qualify to hire people full time instead of trying to skirt the laws and use freelancers. In addition, more money would go to the employer instead of the myriad of government taxes.
What needs to happen for your small business to feel the recovery?