If you’ve read my column in the past, you know that I consider the only positive to accrue to the Main Street economy during the Lost Decade (2007-2016) is the unprecedented financial strengthening of America’s small business sector.
Make no mistake, the Lost Decade, created by three avoidable disasters – the Great Recession (2007-2009), the 2008 Financial Crisis, and Washington’s anti-business policies (2009-2016) – was devastating to this sector. Millions of small firms were wiped out when these three calamities converged to create the economic equivalent of a perfect storm.
But the small firms that survived, the ones that somehow weathered the insidious “New Normal” that defined that period, became stronger from their devotion to these two specific practices: 1) They learned how to operate leaner and more efficiently than they ever thought possible; 2) They deleveraged – got out of debt.
To support my analysis, consider the responses from a recent poll of my small business audience.
When we asked about their “financial ability to withstand an economic downturn,” 55% reported that they could hold on for a year, possibly two, and another 28% allowed they would be okay for six to 12 months. To the uninitiated, these numbers might not sound great. But for the American business cohort that’s been ignominiously synonymous with the term “undercapitalized,” this response is unprecedented in my decades of following this sector. And the reason for this positive shift is the two management practices just mentioned, which have become more fundamental to 21st-century business sustainability than ever before.
Backing up my own polling results is the sector’s Gold Standard survey for almost a half-century, the NFIB Index of Small Business Optimism. During the past two-and-a-half years, the Index’s legendary steward, Dr. Bill Dunkelberg, has reported that even in this rapidly expanding economy, small businesses still aren’t availing themselves of their historical prime source of growth capital – bank loans. The reason, which I pointed out earlier, is small businesses are increasingly growing organically, funded by the fruits of their own discipline: retained earnings and efficient operations.
Consider this: The GDP of our $21 trillion economy is growing at over 3%, banks are almost begging for business borrowers, no living business owner has ever seen lower interest rates, and yet … crickets. That, my friends, is the deleveraging sound of a fundamentally, financially strong small business sector. And yet, from the national business media’s nattering nabobs, breathlessly obsessed with every split-second ticker twitch of Wall Street, reporting on this important, unprecedented major business shift sounds like … crickets.
Which brings us to the third year of economic good times, 2019, and the inevitable “How long can this last?” hysteria emanating from the nabobs. The correct answer comes from Main Street, where businesses are planted in the ground, nowhere to hide, who see no fundamental reason the Main Street economy has to dip into a recession in the foreseeable future.
Even when the inevitable technical recession (two consecutive negative GDP quarters) occurs, barring another 2008-class Wall Street fiasco, or the catastrophic election of a bunch of socialists, my money will be on the resilience of America’s small business owners. These heroes will not only weather the storm with their operational sails trimmed and financial hatches battened down, but their own oak-sturdiness will serve as a solid foundation to help the other economic sectors – especially consumers – recover more quickly.
It’s old news, but it bears repeating that small businesses produce over half of the U.S. economy, sign the front of half of America’s paychecks, and percentage-wise are over 90% of all manufacturers and exporters. But thanks to those two operating fundamentals, there’s bombshell BREAKING NEWS: Even as the February jobs report showed a take-your-breath-away, astonishingly low 20,000 net new jobs created by all employers, the NFIB Index reported that small businesses broke a 45-year hiring record in that same month, with the addition of a net .52 workers per firm. And yet from the media … more Gryllus campestris.
Instead, the business media’s headlines to describe the net new jobs numbers included “Major Disappointment,” “Below Expectations,” even “Weird.” But if they took the time to include Main Street small business jobs-growth performance in their analysis, the nabobs would have been compelled to report: “Thank God for America’s Small Businesses. They saved our job-creating, uh, bacon.”
Write this on a rock … Thank God for America’s small businesses? Well, duh! Out here on Main Street, we do it every day.