Forecast: the small and microbusiness economy in 2010

Posted on | September 2, 2009 | 4 Comments

Cast your eye over this lede from a New York Times article published last Friday:

Even as evidence mounts that the Great Recession has finally released its chokehold on the American economy, experts worry that the recovery may be weak, stymied by consumers’ reluctance to spend.

Possibly one of the most interesting hangovers from last year’s financial markets meltdown is the lasting impression that it’s a mistake to bet the farm on that which is not real.

What that means, in terms of the financial markets, is likely more regulation and less blind faith in the purity of free market capitalism.

What that means, in terms of the friendly neighborhood consumer (upon whose humble shoulders our economy more or less rests), is a sense that you shouldn’t spend money unless it’s really money.

It doesn’t qualify as really money if it’s based on a credit card (debt) or on your equity in your house (collateralized debt) or on your stock portfolio (also collateralized debt). Really money is the little green pieces of paper you get to hold in your hand when you cash a paycheck at a bank.

Of course, nobody does that anymore but you know what I mean.

All of which has caused some very smart forecasting muckety-mucks like Economy.com’s Mark Zandi to predict a slow and painful recovery.

“There’s still a lot of debt out there. It throws a pall over the potential for a strong recovery. The economy is going to struggle,” Zandi is quoted as saying in that NYT article.

Even the prospect of consumers cutting back so that they account for a “mere” 65% of GDP (instead of 70% of it) is giving economy watchers the willies. The issue they seem to care about is not even whether the economy will grow under those circumstances. It’s how much and how fast.

What is interesting to me, watching all this, is that all this fretting is completely foreign to the reality of the microbusiness marketplace.

The problem with permanent reduced spending among consumers is that their demand for all sorts of products and services that they didn’t really need was a large part of what has driven production and most other facets of the economy.

If consumers are going to spend less/demand less, that means that the U.S. economy is going to have to produce less in order for supply to be in some sort of balance with demand. That, in its turn, will mean less growth, fewer jobs created, and assets that increase in value more slowly than we’ve gotten used to.

The thing about microbusinesses, though, is that their overhead tends to be so very low that they don’t require consumers to spend money like a whole shipload of drunken sailors in order for them to make a profit.

And, since we’ve had a lot of new businesses start during this recession and a lot of established businesses shrink back down to micro size, that means that a huge chunk of the small business economy will be in a position to tread water and even grow a bit, even if consumers aren’t spending that much money.

In fact, they probably already are — some of them, anyway.

There’s a good chance that microbusiness employers have already started ramping up job creation during the current calendar quarter, if the trends spotted in the most recent business employment dynamics release from the Bureau of Labor Statistics hold. Unfortunately, said microbusinesses haven’t created enough jobs to make up for the hemorrhaging that is still going on elsewhere in the labor market.

So, looking forward to 2010, I anticipate that there will be a lot of moaning and groaning from the business and financial press because economic growth will only clock in at 2% or so for the first half of the year (if not the whole of 2010).

At the same time, I also expect to hear from a lot of smiling microbusiness owners, who will be wondering what those analysts are being so lugubrious about? Just as micros were among the first to feel the pain of the incipient recession when former President Bush was talking about how well the economy was doing, so too will they be among the first to recover and prosper.

The big boys (the really big boys, as in too-big-to-fail boys) may never fully recover to their to all their historically rapacious glory. But I expect 2010 to be a very good year for the small business economy.

And, in the meantime, I’ll be curious to see if there are any bright boys in the economics community who think its worth while to construct an economic model for a sustainable, global economy that grows modestly and moderately.

After all, if the current pull-back on consumer spending becomes a semi-permanent feature of the U.S. economy (at least for a generation or two, a la the post-Depression generation), then somebody among those very smart people will need to figure out how it all works, won’t they?

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