Purse strings are being tightened along Main Street as small business appears to be the latest economic sector affected by world events. In fact, according to a recent study conducted by the National Federation of Independent Business, optimism among small business owners is at its lowest level since 1993.
“Small business owners seem to have taken the attack personally, with far fewer seeing hope for sales gains,” said Bill Dunkelberg, NFIB Chief Economist.
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And Rhode Island businesses are not immune. According to Keith Stokes, executive director of the Newport County Chamber of Commerce, many of his members are bracing for a long winter, as there has already been a substantial drop in the number of mid-week visitors to the area.
“Clearly the travel industry has been affected by this,” he said. “But what I am hearing is that the mid-week business travel has dropped significantly. It’s a concern that people are rethinking their corporate travel policies and that has affected many of our local hotels, and mansions.”
What makes measuring the effects more difficult, Stokes said, is that Newport’s unemployment rate usually rises this time.
“I haven’t seen the most recent numbers to know just how drastically they have risen,” Stokes said. “But I know that people are watching their expenses. I think what we need to do is build confidence.”
But that doesn’t seem likely. According to the NFIB, optimism among small business owners fell seven points between August and the second half of September, dropping five points after the attacks of Sept. 11.
According to the survey almost all of the optimism indicators have fallen, including hiring plans, which are down nine points, capital spending plans which fell six points, and the expected real sales indicator which saw a 17 point drop.
“This event has truly shaken the system and only time will tell if that shock does long-term damage,” Dunkelberg said. “Beneath the economic rubble is a solid foundation for economic recovery. Even after an 11 point decline, the percent of firms expecting better business conditions in six months was still above the January-July average for the year. The October report may shed light on whether consumers and entrepreneurs have gotten over the initial shock and become comfortable enough to start doing business again.”
But Bryant College Economics Professor William Sweeney said local business shouldn’t expect to bounce back that quickly.
“I think that we are all prepared for the fact that it is going to be a huge effort,” he said. “It does seem that six months pop up as a healing period. It gives people time to get over the initial shock, gather strengths and move ahead. Using history as a guide I would say six months.”
Still, Sweeney said, the ability of small businesses to bounce back is directly linked to the consumer.
“Most businesses are dependent upon the consumer,” he said. “The consumer represents 66 percent of our gross domestic product, so when the consumer becomes pessimistic it naturally affects small business.”
William J. Schlageter, president of the Providence-based Novaré Engineering, doesn’t expect his business to be negatively affected by the events of Sept. 11, at least in part because the overall economic slowdown had already hit the construction and building industry.
“We have not been forced to change our plans because of the events of Sept. 11,” he said. “The slowdown in our industry had happened before then. The building construction industry is also long-term so we are now working on projects conceived a year or so ago.”
Six months from now, Schlageter said, he expects to see an increase in his business.
“I see this affecting me in a positive way,” he said. “We increase in several avenues including security as it relates to building and construction.”
By diversifying, Sween-ey said, Schlageter is doing the right thing.
Sweeney said what may protect local business owners is experience.
“Eighty-five percent of Rhode Islanders are employed in a small business,” he said. “I think by and large these business are family operated and well run. They try and prepare for everything. And while they couldn’t have prepared for this, they knew there would eventually be a downturn and hopefully they prepared for that by setting aside cash. Some businesses will take longer to bounce back, but I think the right strategy will take you over the rough times.”
