Now that another election has mercifully ended, is there anything positive that could come out of it for small business?  The short answer is no.  The long answer is no.  Small business usually gets a lot of press as engines of employment, home, mother, flag, country, etc..  But press and lip service is about it, and for the next two years until the presidential election, there is probably going to be enough gridlock in Congress over big issues such as health care, that small business won’t even register on anybody’s radar screen.

The one thing that could really help small business, the SBA, is not going to be a big factor because once the temporary regulations in place now – the 90% guarantee and waiver of fees – expires on December 31, and unless it is renewed, which has to be done by Congress, SBA terms will revert back to the 75% guarantee with fees.  It is still by far the best deal around to help banks make loans that they might otherwise not make, but banks are not very inclined to lend right now, SBA guarantee or not.

The only thing visible on the horizon right now to help small business prospects improve is just to let the economy improve by itself.  There is nothing the government can do to make more people buy when there is high unemployment and uncertainty where there economy is going, and until sales start to increase, most small business owners are going to be loath to take on more debt than they already have.  Improvement is coming, but it is going to be slow and it is not going to be a result of anything that Congress does.  One small signal of improvement came with yesterday’s report that light-duty trucks outsold cars by the widest margin in five years in October.  Often these are the types of trucks that small businesses buy when they begin to believe that business may be improving.

There was a wonderful quote on Monday from Dan Greenhaus of Miller Tabak, an investment advisory firm.  He said regarding the election, “Unfortunately, what many people are viewing as a potential turning point in our country’s history may instead, and more likely, simply be a case of graduation from the third grade to fourth.  In many ways, this is still a kid’s classroom, glue is still being eaten, the math is just as hard to teach and the kids are just as uninterested to learn today as they were yesterday.”  Wonderful!

It’s not often that you get an accurate forecast of the economy from anyone in Congress, but recently Senator Minority Leader Mitch McConnell (R-KY), hit the nail right on the head although he probably didn’t know it.  In an interview with the National Journal McConnell said, “The single most important thing we want to achieve is for President Obama to be a one-term president.”  Most economic forecasters would kill to be able to make such a spot-on forecast.  But McConnell did it.  Essentially what he said was that there is no chance of any movement toward action to improve the economy over the next two years because the Republican Senate, even though they still may not be in the majority at the time of this writing,  has to concentrate on beating President Obama in 2012.  And by the way, the public be damned.  A strategy like that would be one thing if we were in a stronger economy, but we are still in an economy that is dancing around on Humpty Dumpty’s wall, and could fall in the wrong direction. 

There are several big reports due out this week, such as the ADP Employment Report for October.  The consensus is for an increase of 20,000.  Week after week for the last several months we see some improvement in one category and some decline in another.  So we see the economy staggering along Humpty Dumpty’s wall, slowly making forward progress, but that could just as easily be knocked off by some major unforeseen event.  Knowing that there is going to be nothing out of Washington, small businesses need to think strategically about operating in an economy for the next two years that is going to be stagnant.  Approximately 75% of all workers still have full-time jobs, but that still means a shrunken market for many businesses, and operating in the most efficient manner possible and concentrating on core competencies may be a winning strategy for survival.

External financing is not much of an issue for a large majority of small businesses now; what is most important is to be concentrating on cash flow and profits.  Then when the time comes that the economy begins to grow and external financing is needed, the combination of banks needing to increase lending to improve earnings and profits, small businesses that have come through the recession and are starting to grow, may make the next two years of stagnant economy a useful prelude to a stronger recovery than seems possible now.  Banks are continuing to build up cash, and they are earning almost nothing on it.  Also, many large companies are building up tremendous amounts of cash that they are reluctant to spend until they see a clearer picture that the economy is starting to grow.

Many companies have eliminated just about all the employees they can without hindering their operations and they have also not invested in much plant and equipment yet.  There may come a tipping point where companies have to start investing in new capital equipment and hiring people in order to grow again, which will mean turning loose some of that cash.  Banks will have to start lending because they also have a great deal of cash on their balance sheets on which they are earning next to nothing, and they need loans to increase their earnings.  If all this happens over a relatively short period of time, the speed of the recovery could surprise a lot of people.

What About a New CCC?
November 1st, 2010

The economic recovery is going nowhere, and trending more and more toward a double-dip recession.  Most knowledgeable economists and forecasters are saying that it won’t happen, but I notice more and more in the last two weeks that their resolve is becoming a little weaker.  And why wouldn’t it?  Most of the economic news over the last two weeks has been bad, topped off with the dramatic drop in the Consumer Confidence Index.  In the stories and commentaries that I read, the same word appears over and over – jobs.

Now, step back in time to the New Deal.  Wave that name and around in a crowd and there will be much weeping and gnashing of teeth from those who believe that anything that the government does to stimulate the economy is tantamount to mating with the devil.  No matter what anyone thinks about it, consider one New Deal program that was specifically designed to create jobs – the Civilian Conservation Corps – the CCC.  Over its life span from 1933 to 1942 the CCC provided 3 million jobs, mostly to men whose families were on relief.  Among the hundreds of CCC projects, it planted almost 3 billion trees and built more than 800 parks across the country, many of which became the beginnings of subsequent state parks.  The way the CCC worked was that enrollees worked 40 hours a week for which they were paid $30 a month, and it was compulsory that $22 to $25 of that was sent home every month to a family dependent.  The program itself was housing and feeding the men.

Yes, different time and different place, but 3 million jobs for people who had none, and more than likely, that $22 to $25 a month was spent into the local economy, keeping many businesses from failing.  So let’s say that the government spent $1 of stimulus money that was added to the deficit.  But it gave someone a job.  That income bought vegetables at a grocery store that bought them from a wholesaler who bought them from a farmer who had purchased the seed from a seed company that owned their building and was paying a mortgage.  That string could keep going, but the fact is that there was a long line of people who benefited.  So that $1 was not just thrown out there with little or no hope that it was going to be paid back.  It was paid back by helping people live from day to day and helping the business that served them.  Whether it was $1 or not doesn’t matter.  It kept things going until the economy finally righted itself and probably saved a lot more jobs.  And at least some of it did come back through tax payments at the time, and later after the economy had recovered, eventually the whole dollar came back because people had jobs and were paying taxes.

Today we have crumbling infrastructure all over the country plus many other things in different states that have to be neglected because many state governments are in extreme financial difficulty and are going to continue to be for at least two or three years.  Pay attention to the news long enough and you hear stories of police being laid off; fire departments having to idle equipment; teachers being laid off, and much more.  Yet in Washington the cry now is going up to stop spending and start cutting the deficit, and it is critical that we start to do that.  But at a time when the economy is in dire shape with something like 15 million people either without a job a job which barely covers their living expenses, removing stimulus which only government can provide could be a colossal mistake.  And yet, when a really big crisis comes along where in the early stages the government is being roundly criticized for its lack of response (the oil spill), all of a sudden the rhetoric changes and people start calling on the government to do something.  Those dots don’t connect.  If lawmakers want to see a grim view of the future, imagine what several years of high unemployment will do to the country, and they are well on the way to finding out.