The Small Business Vulnerability To A “Double –Dip” Recession
In February, in our early year 2011 economic outlook, we predicted the following about 2011: clearly there would be little to gradual economic growth in the holistic US economy, a lack of consumer spending, married with uncertainty in the real estate and capital markets. We further predicted that SMEs (small to medium size businesses) would experience double dip recessionary pressures as a result of the lack of access to capital and the suppressed levels of business to business spending.
The recent news on GDP, which illustrated an expansion of only 1.3 percent and consumer spending up a mere 0.1 percent in the second quarter, coupled with the downgrade of the USA debt, including the lack of a longer term resolution to the deficit is accelerating the problematic economic issues facing small business; therefore it is clear to us at Ephor, the SME sector of the economy has reached double dip symptoms.
Economists say that the Great Recession began in December 2007. And for most small business owners, and for the majority of Americans, the downtown of 2008/2009 never really ended.
And what’s worse is that the economic indicators do not show signs of improving in the near-term. An Ephor Group research survey of small business owners in Q2 2011 found that the majority of businesses are underperforming (only 1 in 5 businesses are “outperforming”). In fact, we at Ephor believe that the growth rate will not improve significantly until the monthly gain in jobs is consistently 300,000 jobs or more. And, at that rate the gains would have to be consistent for over two years to bring the economy back to what is traditionally considered a reasonable unemployment figure.
We at Ephor therefore believe the symptoms of a double dip environment are clearly in place, and this downturn will continue for a minimum of the next 10 quarters.
Consider the following from a recent MSNBC report titled, “10 signs the double-dip recession has begun.”
1.Inflation is occurring for coffee, commodities, and other basic products which undermines consumer confidence.
2.Investments have begun to yield less and become more volatile as Americans have very few places to put their hard earned dollars, which really only include 10-year Treasuries which yield about 3 percent. The market may not be a friend to investors for quite some time.
3.Oil prices have impacted the economy as movement to and from is limited.
4.The federal budget deficit has decimated any chance for another economic stimulus package which could have been effective.
5.Unemployment is one of the biggest challenges the economy faces as people without jobs drastically curtail their spending, which will ultimately affect GDP growth. And second, is the need for tens of billions of dollars every year in government aid to keep the unemployed from becoming destitute.
There is no relief in sight because potential buyers worry that price erosion has not ended.
In conclusion, for the foreseeable future the outlook for the economy is simply not favorable and specifically for the SME sector that outlook is even further suppressed. Bankruptcy rates for the SME sector will continue to rise as a result of management and the leaders of small businesses simply not adjusting and altering their business models to reflect the exogenous economic factors that are prevalent. The businesses that will survive and prosper will make those required adjustments either thru great timing or great skill or both. We at Ephor urge all small business to seek outside help and become change agents. It is up to us as a business community to lead the economic recovery just like we have done in every economic downturn.
Let us know how we can assist you in your efforts, and best of luck in the near-term.
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