Small businesses say economic uncertainty is rising

The mix of economic messages is making it difficult for business owners to understand how to proceed. “That’s one big question mark.”

Paper Plane Coffee Co. owner Jonathan Echeverry stands in the space used to expand the coffee shop next door in Montclair, New Jersey, July 28.
Jonathan Echeverry, owner of Paper Airplane Coffee, stands in a space used to expand a coffee shop next door in Montclair, New Jersey, July 28. (For Evelyn Freja/Washington Post)
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Construction workers in Montclair, New Jersey, are working overtime on the $150,000 Paper Plane Coffee Co. expansion. This will double the size of his store to meet burgeoning demand and create new tasting rooms and event spaces.

But if the economy takes a turn for the worse, owner Jonathan Echebarry already has a plan B. He plans to suspend his employment and switch to cheaper varieties of coffee beans and less creamy local milk.

“This is one big question mark. We are growing so fast that we need bigger machines and bigger manufacturing facilities, but where will we be a year from now? ” He said. “I would be lying if I said I wasn’t worried about the recession.”

Two-and-a-half years after the pandemic, small business owners say they are just beginning to recover from the sudden blow that held many businesses back when pandemic-induced regulations began in early 2020.. Since then, the owners have dealt with rising costs, labor shortages and wild swings in consumer demand.

Choose your economy: a booming labor market or volatile growth

Now they are plagued by divergent economic messages wondering what to do next. The U.S. economy shrank for her second straight quarter, reviving fears the country could plunge into recession. But while last week’s very strong jobs data has wiped out many of those concerns, it has made it more difficult and costly for small business owners, especially in the hospitality industry, to find and retain workers. rice field.

At the same time, as the Federal Reserve raises interest rates in hopes of slowing the economy enough to curb decades of high inflation, consumer demand for commodities is slowing and borrowing is slowing. Costs are rising.

“Small businesses are taking one hit after another, and we’re in an extraordinary situation right now where we don’t know what’s going on with the economy,” said Paige Ouimet, a professor at the University of North Carolina at Kenan-Flagler. business school. “Uncertainty affects small businesses more than large companies.”

Small businesses (generally defined as businesses with fewer than 500 employees) are a significant part of the economy, employing about half of the country’s private sector workers. But they tend to have less financial cushion and less places to turn in tough times, especially when compared to behemoths like Walmart.

Small businesses are losing to Walmart and Amazon in the 2021 supply chain battle

Running a business has always required careful balancing of supply and demand, but Echeverry says he runs a coffee company. increasingly distrustful. Coffee bean prices have doubled for him this past year, and take-out groceries are increasingly out of stock. At the same time, patrons are beginning to suspend weekly deliveries of premium coffee, saying it’s a luxury and no longer fits their budget. Where he used to come four or five times a week for a latte, he now comes half as often.

“There are a lot of extraordinary reversals in the economy right now,” said James Wilcox, a professor at the University of California, Berkeley’s Haas School of Business. “For small businesses, that means fewer customers than they used to. After all, that’s what the Federal Reserve intends,” he said, trying to curb soaring inflation.

In our interviews, more than a dozen small business owners outlined the steps they are taking to prevent a possible recession. Some say they are postponing regular renovations or hiring contract workers instead of hiring full-time employees. It also stocks lower prices and cancels deals with retailers like Target and his QVC to sell directly to consumers in a way that gives them more control over production and profits. Some companies have All these setbacks, when multiplied by thousands of small businesses, could further chill the economy.

Many business owners say it’s hard to predict when and how much things will slow down.others It also seeks to make up for shortages of both workers and supplies, and says it is still hesitant to cut even if it means eating into profits.

Higher Ground Transportation Services, a Bowie, Maryland company that provides shuttles and vans for groups and events, has a jam-packed schedule this summer. But owner Jan Peters says he thinks twice before making long-term investments.

Peters is still struggling to get his business back to its pre-pandemic state when he had to lay off all five employees and sell five of his 13 cars. She then rehired her four employees. But she’s also gradually changing her approach. Instead of more full-time workers, she hires part-time contractors. She is usually a school bus driver who works for free during the summer and weekends. And she started looking for used rather than new vans to round out her own fleet.

Small businesses used to define the American economy. A pandemic could change that forever.

“This summer has been great for us, but businesses like mine are still trying to get back to pre-pandemic conditions. We’re having weddings, proms and family reunions again.People want local travel to and from the East Coast.But how long will that last?I honestly don’t know.”

Meanwhile, rising prices and supply chain issues continue to weigh on her business. Diesel costs nearly double what they were a year ago, and Peters had to raise wages by 20% to keep drivers from switching to large, high-paying outfits.

She also pays more if she can find a new car. So when she recently spotted a van with new tags, she tracked it off the highway to see if she could track down where the dealership it came from. (She couldn’t. “Other people are blown away by fancy cars and jewelry, but I just set my sights on newer cars,” she said.)

But parts shortages are making it difficult to even keep her existing vehicle on the road. For example, one of her Mercedes, her Sprinter vans, and her new air conditioner have been waiting in her shop for more than two weeks, she said, resulting in about $10,000 in lost revenue.

After months of unsustainable rapid growth and inflation, the Fed began raising rates this spring on hopes that higher borrowing costs would dampen consumer and business demand and cool the economy. There are already signs of a slowdown, particularly in the housing market, but economists fear the impact of higher interest rates could hurt the economy later this year, triggering a recession.

“Business is slowing down, but the key here is how big it is,” said Betsy Stevenson, an economics professor at the University of Michigan. “We want businesses to get less lending, but how much less?

What causes the recession? how a recession starts.

It’s a tricky calculation that fuels business owners’ anxiety about the future. Data released this week by the National Federation of Independent Business showed that the percentage of small business owners citing an increasingly uncertain economic outlook surged in his July, but overall optimism remained low. It remains at historically low levels.

At The Flix, an independent movie theater and restaurant in Boise, Idaho, business is slowly starting to recover after taking a nosedive during the pandemic. (The business lost $900,000 in its first year alone. She also wants to give longtime employees raises, but she’s waiting until she feels the economy is on firmer footing. Is called.

During the pandemic, theaters installed new air filtration systems and tried many marketing strategies. For example, we sold movie theater popcorn to take away and offered DVD and VHS rentals on the porch. But even if pandemic concerns subside, it will be difficult to win back customers accustomed to streaming movies without leaving their homes.

“The past two years have been very bumpy,” says Skinner. “We tried everything we could to make a little money, but it really wasn’t enough. We’re hopeful, but we’re still in the red.”

Credit card debt soars as inflation pushes Americans to borrow more

The only bright spot, she and many others in the service industry say, is that consumers are shifting their spending from goods to experiences such as dining out, entertainment and tourism. But the pressing question is how long Americans will stick with it.

Common Deer, a gift shop in Burlington, Virginia that specializes in American-made goods, has been hit on both ends by rising wholesale prices and shrinking shopper budgets. As a result, co-founder Sarah Biel began stocking up on lower-priced products, especially for the holiday season.

“People who spent $50 on a gift for their niece last year may only have a budget of $30 this year, so be prepared for that,” she said. “We bet a lot in retail. We buy inventory long in advance and hire people before we need them.

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