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Small Businesses Fear Economic Turmoil Will Spook Consumers

Just as small businesses were starting to recover from the recession, the latest turmoil in the U.S. economy has small business owners and the organizations that represent them worried.

"From a small business perspective, the S&P (Standard & Poor's) downgrade meant little directly. But it did refocus many in the market and in business on the very sad state of this so-called recovery, and continuing ineptitude in terms of policymaking," said Raymond J. Keating, the Small Business & Entrepreneurship Council's chief economist.

The National Federation of Independent Businesses (NFIB) says its members were already becoming increasingly less optimistic before the events of the last few days. For the fifth consecutive month, its monthly small-business optimism index fell. With the repercussions of the debt compromise yet unknown, next month’s report will provide a more complete picture of the reaction on Main Street.

"Given the current political climate, the protracted debate over how to handle the nation’s debt and spending, and now this latest development of the debt downgrade, expectations for growth are low and uncertainty is great," said Bill Dunkelberg, NFIB's chief economist. "At the two-year anniversary of the expansion, the Index is only 3.4 points higher than it was in July 2009. And considering the confidence-draining performance of policymakers, there is little hope that Washington will stop hemorrhaging money and put spending back on a sustainable course. Perhaps we might begin referring to the ‘Small-Business Pessimism Index’ from now on."

Fearing the worst

Business owners are decidedly nervous about the events of the last few days.

"I own a women's sleepwear business and sell luxury cotton pajamas online," said Elizabeth Allen, owner of Elizabeth Cotton, based in Clinton Corners, N.Y., which sells its products online and through retailer Neiman Marcus. "Our online sales over the past two weeks are down 30 percent [as compared] to last year."

Allen is particularly concerned because, she said, about 75 percent of her company's annual sales happen in the fourth quarter. 

"So we are very vulnerable to what happens over the next few months," she said.

Allen's not alone.

"I am extremely concerned about the recent stock market slide and its effect on my small business," said Tom Hoebbel, owner of Thomas Hoebbel Video~Photo in Brooktondale, N.Y.

"I feel like my business was just emerging from the effects of the previous economic downturn and am concerned about being able to weather another."

Hoebbel and others who sell items that are not considered necessities are concerned that consumers who were just getting comfortable spending again will be spooked by Standard & Poor's downgrade of the United States' credit and the resulting stock market plunges.

"Many clients close their wallets during times of uncertainty such as this," he said.

Karen Port, owner of Mirage Spa, a hot tub retailer in St. Louis, said the economic events of the last few days have her very worried.

"We are not out of the woods from the recession and then to have a crash makes our consumers even more worried about their finances. We are holding on but need the economy to improve," she said.

"My biggest concerns are that the consumers will hold back on spending which will then decrease our sales. This in turn means my employees (including myself) will have smaller paychecks. This in turn means that we all will have less to spend, which translates into paying only for necessities."

Small business owners' fears are not entirely unfounded, according to Gary Rago, director or the New Jersey Small Business Development Center at Rutgers-Camden.

"Of course, demand for their products and services are affected by the mood of consumers," Rago told BusinessNewsDaily. "Standard & Poor's downgrade and the decline of stock market valuations creates uncertainty and fear in consumers, reducing demand. This is not good news for business owners."

'Wait and see'

Other small business owners are taking a wait and see attitude.

"I think that people are going to be prudent and approach the situation with a 'let's wait-and-see' attitude," said Catherine Simms partner/creative director at a Stamford, Conn.-based pet products company called Whiner and Diner. "If it gets worse, the medium-income consumer will not spend. The high-income consumer will spend as usual."

Sander Daniels, co-founder of a San Francisco-based company called, that connects consumers with professional services, said he's not very worried.

"Our company thrives in a recession environment," he said. "We provide free and low-cost advertising services for local businesses. We saw a huge uptick in our customer base when the recession began, and we have built our company over the last three years knowing that the macro-economy could get significantly worse. We're confident that our company will thrive even if things go downhill again."

Daniels believes it's a waste of time for small business owners to worry. "We don't think it does a whole lot of good to worry about what's going on in Europe or in Washington. We're focused on building a great product for our customers," he said.

Business News Daily Editor

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