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ESMAEL ADIBI
Director, Anderson Center for Economic Research
Chapman University
Consumers will remain cautious, and so must small businesses
Since small businesses directly or in-directly depend on consumer spending, this recession has hit them hard.
After
16 consecutive years of increases, year-over-year consumer spending
declined in the third quarter of 2008, and the pace of the decline
accelerated through the second quarter of 2009. The increases in
consumer spending were astonishing but understandable. Lower interest
rates and relaxed lending practices fueled home buying and rapid home
price appreciation. Consumers used their home equity to refinance
mortgages, taking out cash and spending it. Hence, during the
2001-to-2006 period, higher home prices, an improving stock market and
a pickup in the job market boosted consumer confidence and spending,
benefiting many small businesses.
The most recent gauge of
consumer confidence nationally, as well as the results of the survey
conducted by our center measuring consumers’ sentiment here in
California, recently hit historical lows.
The slower rate
of growth in consumer spending suggests that small business owners
should plan on a slow rate of growth in their revenue and expect fierce
competition. Product differentiation and high-quality service both
affect consumer satisfaction and must be placed as top priorities.
Small
business owners should not count on a strong economic recovery and must
reduce debt and curtail excessive borrowing. Interest rates, both
short- and long-term, will increase sharply in the near future. And
with a weak revenue stream, servicing debt will become an encumbrance
to many small business owners.
Andrew J. Policano | Anil Puri | Esmael Adibi
Abe Helou | Linda A. Livingstone | Timothy Peters
Ahmad Hosseini | James G. Ellis
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ESMAEL ADIBIDirector, Anderson Center for Economic Research
Chapman University
Consumers will remain cautious, and so must small businesses
Since small businesses directly or in-directly depend on consumer spending, this recession has hit them hard.
After 16 consecutive years of increases, year-over-year consumer spending declined in the third quarter of 2008, and the pace of the decline accelerated through the second quarter of 2009. The increases in consumer spending were astonishing but understandable. Lower interest rates and relaxed lending practices fueled home buying and rapid home price appreciation. Consumers used their home equity to refinance mortgages, taking out cash and spending it. Hence, during the 2001-to-2006 period, higher home prices, an improving stock market and a pickup in the job market boosted consumer confidence and spending, benefiting many small businesses.
The most recent gauge of consumer confidence nationally, as well as the results of the survey conducted by our center measuring consumers’ sentiment here in California, recently hit historical lows.
The slower rate of growth in consumer spending suggests that small business owners should plan on a slow rate of growth in their revenue and expect fierce competition. Product differentiation and high-quality service both affect consumer satisfaction and must be placed as top priorities.
Small business owners should not count on a strong economic recovery and must reduce debt and curtail excessive borrowing. Interest rates, both short- and long-term, will increase sharply in the near future. And with a weak revenue stream, servicing debt will become an encumbrance to many small business owners.
Andrew J. Policano | Anil Puri | Esmael Adibi
Abe Helou | Linda A. Livingstone | Timothy Peters
Ahmad Hosseini | James G. Ellis
BACK TO MAIN PAGE
Abe Helou | Linda A. Livingstone | Timothy Peters
Ahmad Hosseini | James G. Ellis
BACK TO MAIN PAGE