Forecast partly cloudy for small businesses
By Joyce M. Rosenberg
Associated Press
NEW YORK — It's been a hard year for many small companies, with the economy lurching forward in a recovery that at times seemed tenuous. Economists say 2003 probably will be better, but business still is unlikely to be robust.
"The economy's going to continue to grow, but it's going to be an under-performing recovery," said Raymond Keating, chief economist for the Small Business Survival Committee, a Washington-based advocacy group. "I'm not seeing anything that's telling me we're going to get back to where we should be."
Ken Goldstein, an economist with The Conference Board, a New York-based research group, said, "We're not talking about going from zero to 60 in 10 seconds. We're talking about about going from zero to 20."
Other economists were similarly reserved in their forecasts.
"Next year will be better than this year, although I don't know if we're going to get a lot better," said William Dunkelberg, chief economist with the National Federation for Independent Business, another Washington-based advocacy group.
"I see growth remaining pretty much where we're seeing it for the second half of this year, about 3.5 percent," he said, using gross domestic product figures as a benchmark.
But while the economy is expected to improve, small businesses likely will find their profit margins under continuing pressure, said Mark Vitner, senior economist with Wachovia Corp., the Charlotte, N.C.-based banking company.
"Sales for most firms should be a little big stronger, but they're still facing some of the same tough obstacles as they did this year, those being rising health care costs, property and casualty insurance rates," Vitner said. He forecast a sales increase in the range of 5 percent to 6 percent.
"It's a tough operating environment for business even though the economy's getting better," he said.
A big factor behind the unevenness of the economic recovery this year has been the reluctance of businesses of all sizes to increase their capital spending. That affects small companies in two ways: They aren't getting as much business from bigger customers, and in turn, they are hesitant to make big financial commitments.
But the economists noted that manufacturing companies are feeling confident enough to be building their inventories again, which means they're expecting better demand in 2003. Goldstein, of The Conference Board, said he was hopeful that business investment will increase in the first half of next year.
Keith Leggett, senior economist with the American Bankers Association, noted that in a survey of chief financial officers of middle-market manufacturing firms, nearly 70 percent were optimistic about the economic recovery during 2003.
"As these companies gear up and expand, that is going to translate to more business for people who are their suppliers," he said.
Leggett, whose Washington-based organization is the trade group representing U.S. banking companies, also said lower interest rates should help the economy.
Small companies' hiring plans — which go along with business investment and capital spending — are unlikely to change until demand does, Dunkelberg said. Using a restaurant as an example, he said management won't hire more waiters until more customers show up for lunch.
Keating said his group was looking to the federal government for economic stimulus, in the form of an acceleration of tax cuts that were signed into law during 2001, that would help small businesses, but that is a "big if."
