Heading into the holiday season, small businesses aren't particularly optimistic about the outlook for the U.S. consumer. Their biggest worry isn't taxes or insurance costs, but poor sales, according to a report from the New America Foundation. Taxes may make up 21 percent of small business worries, but weak sales make up a shocking 31 percent. That leaves every other concern in the dust.
But they might be in for a massive surprise.
U.S. consumers have been deleveraging, rather than spending. That means instead of increasing their debt through new credit cards or by tapping their home equity line of credit, consumers are paying their bills and trying to do it at a faster rates. They're even saving more than they have in previous years, according to the Bureau of Economic Analysis, with consumers saving over 5 percent of their disposable income.
More evidence can be found in the latest report from the New York Fed which shows a sharp decline in outstanding credit, most notably credit cards.
This isn't just something data points to, but a theory about the economic experience the U.S. economy is currently going through. According to some, the U.S. is in a "balance sheet recession" where individuals and businesses are more interested in paying down debt rather than spending.
But the U.S. market may be on the brink of a massive change, with consumers ready to start swiping their cards again.
The wealthy are already spending again, on luxury goods and tech, so if you're a small business catering to that sort of clientelle, you may already be winning.
Now the broader consumer base, long disenchanted by high unemployment rates, are looking to get back into the credit game. They're starting with cars. Deutsche Bank point out that those car sales often lead the rest of consumer credit trends.
And, if recent information on the banking sector is to be believed, the credit is there ready to be taken. Banks have reduced their lending requirements and are seeing small increases in demand for credit, though minimal at this point.
But why the sudden shift in thinking? Right now, interest rates are at near all time lows. So those are being passed on to the consumer in a variety of ways, like lower introductory rates on credit cards and extremely low mortgage rates. These rates are in reaction to U.S. government policy, recently made even more easy by the Fed's bond buying program, known as quantitative easing 2.
There is the possibility that, even though all this cash is out there ready to be leant, consumers just don't want it. They're still busy deleveraging, and would rather have an austere holiday season than jump back into debt for the New Year.
But, if consumers do turn around and demand the cash, we could be in for more than one outcome. It won't just mean better sales than expected for small businesses, but also increasing inflation, which could hit their costs heading into the New Year.