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Mixed messages about the economy are making it difficult for business owners to know how to proceed. “It’s a big question mark.”
“It’s a big question mark: we’re growing fast, we need big machines and a big production facility, but what are things going to look like a year from now?” he said. “I’d be lying if I said I wasn’t worried about the recession.
Two and a half years after the outbreak, small business owners They said they have begun to recover from the emergency that faced many of them during the pandemic restrictions in early 2020.. Since then, owners have faced high costs, labor shortages and consumer demand often impacted by the coronavirus environment.
Now, many are struggling with economic messaging as they wonder what to do next. The U.S. economy shrank for the second quarter in a row, reviving fears that the country could be headed for recession. But an exceptionally strong jobs report last week quelled those concerns, making it harder and more expensive for small business owners, particularly in the hospitality industry, to find and retain workers.
At the same time, consumer demand for goods has fallen, and borrowing costs are rising, as the Federal Reserve raises interest rates to slow the economy to stem decades of high inflation.
“It’s hit small businesses one by one, and now we’re in this unusual situation where we don’t know what’s going on with the economy,” said Paige Oumet, a professor at the University of North Carolina at Kenan-Flagler. Business school. “There’s a lot in the air, and uncertainty affects small businesses more than large companies.”
Small businesses—generally defined as those with fewer than 500 employees—are a vital part of the economy, employing about half of the nation’s private sector workforce. But they have little financial cushion and less room to turn, especially compared to giants like Walmart, when times get tough.
Although Echeverri claims to run his coffee company, running a business always requires the carefully balanced forces of supply and demand. He feels increasingly confident. The price of coffee beans has doubled in the past year, and accompanying food items have gone out of business. Similarly, regular coffees have started pausing the weekly supply of premium coffee, saying it’s a luxury that doesn’t fit their budget. People who used to come for lattes four or five times a week are now coming in half.
“There are a number of unusual fluctuations in the economy right now,” said James Wilcox, a professor at Berkeley’s Haas School of Business in California. “For small businesses, that means they’ll have fewer customers than before — and that’s the goal of the Federal Reserve,” he said, trying to curb rising inflation.
In an interview, more than a dozen small business owners listed the steps they are taking to prevent recession. Some say they are putting off regular renovations or bringing in contract workers instead of hiring full-time workers. Others are stockpiling lower-priced goods or eliminating direct-to-consumer arrangements with retailers such as Target and QVC, giving them more control over production and profits. All of these weaknesses, when multiplied by thousands of small businesses, can work to further slow the economy.
Many business owners say it was difficult to predict when things might go down or by how much. others They are also still trying to make up for shortages in both staff and supplies and are reluctant to downsize even though this could eat into profits.
Higher Ground Transportation Services, based in Bowie, MD, provides shuttle buses and vans for groups and events. But owner Jan Peters says she thinks twice before making long-term investments.
Peters is still struggling to rebuild her business back to where it was before the pandemic, which forced her to lay off five employees and sell five of her 13 vehicles. Since then, she has hired four employees. But she’s also slowly changing her approach: Instead of more full-time employees, she’s bringing in part-time contractors — especially school-bus drivers who are free summers and weekends. So she started looking for used vans instead of new ones to turn around the fleet.
“Even though this winter has been good for us, businesses like mine are still trying to get back to where we were before the pandemic,” he said. “Summer camps are saving us this year. Again we are doing weddings, proms, family reunions. People like to travel locally up and down the east coast. But how long will this last? I really don’t know.”
Meanwhile, inflation and supply chain disruptions continue to weigh on its business. Diesel costs are nearly double what they were a year ago, and Peters has had to raise wages by 20 percent to keep drivers from leaving for bigger, higher-paying outfits.
She is paying more if she can get new vehicles. Production delays have made it impossible to track down full-size vans — so recently, when she saw one with a new tag, she pulled off the highway to see if she could check out the dealership she came from. (She couldn’t. “Other people enjoy nice cars or jewelry, but I just have my eye on new vehicles,” she says.)
But the lack of spare parts has made it difficult to even keep its existing vehicles on the road. One of the Mercedes Sprinter vans, for example, says she has been waiting in the shop for more than two weeks for a new air conditioning fan, which is $10,000 in lost revenue.
After months of sustained rapid growth and inflation, the Fed began raising interest rates this spring in hopes that higher borrowing costs would dampen consumer and business demand enough to slow the economy. Although there have already been signs of a slowdown, particularly in the housing market, economists fear the full impact of higher interest rates could cripple the economy later this year and trigger a recession.
“Businesses are shrinking, but what’s the issue here? By how much?” Betty Stevenson, an economics professor at the University of Michigan, said. “We want businesses to borrow less, but how many less loans? That’s what the Fed is trying to be right about by raising the right rate.”
It’s a clumsy calculation that’s feeding business owners’ anxiety about the future. According to data from the National Federation of Free Trade Associations, the percentage of small business owners who are uncertain about the economic outlook increased sharply in July, while overall optimism remained at a historic low.
At Flicks, an independent movie theater and restaurant in Boise, Idaho, business is slowly starting to resume after the pandemic hit. (The business lost $900,000 in the first year alone.) Now, amid new economic turmoil, co-owner Carol Skinner has put the brakes on renovation plans, investing $100,000 in new seats until it turns profitable again. She wants to pay long-term workers, but says she’s waiting until she feels the economy is on more solid footing.
During the outbreak, the theater installed a new air filtration system and tried a number of marketing methods: for example, selling movie theater popcorn and offering curbside DVD and VHS rentals. But as the threat of the pandemic receded, it was difficult to win back customers who were used to streaming movies without leaving their homes.
“The last couple of years have been brilliant,” Skinner said. “We tried our best to earn some money, but of course it wasn’t enough. We have hope, but we are still in the red.”
One bright spot, she and others in the service industry, is that consumers have shifted their spending away from goods to experiences like dining, entertainment and tourism. The looming question, however, is how long Americans will continue to spend.
The Joint Deer Gift Shop in Burlington, Vt., which focuses on American-made products, is being hit by both sides: higher wholesale prices and shrinking budgets among shoppers. As a result, co-founder Sarah Beal began stocking low-priced products, especially for the holidays.
“People who spent $50 on a gift for their sister last year may only have a budget of $30 this year, so we have to be prepared for that,” she said. “We’re taking a lot of gambles with retail—you’re hiring people before you’ve bought stuff yet—which is harder when you’re not sure what’s going to happen.”
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