NFIB

Exiting the Economy Superhighway
03/ 22/ 2002

by Bill Dunkelberg

After cruising on the expressway in excess of the speed limit, an exit into a 25 M.P.H. zone is sure to cause a "head snap" and a distinct feeling that you are moving very slowly.

So it was with the economy, which had reduced its speed by 300 percent by the end of 2000, growing only 1.1 percent in the fourth quarter. The press failed to put the news into perspective, conveying the message that the sky was falling. Consumers caught on, even business owners, and optimism "plummeted" with some of the largest monthly declines in history—but again the press failed to note that the optimism indices still stood at historically high levels, even after their declines. Small business optimism did take a plunge in December, but not as large as consumer optimism. January brought more declines, but much more modest, which were then reversed in February and March. Bottom line—the economy was not going off a cliff, at least not in the first half of 2001.

So, after years of racing along, the economy is running low on fuel and needs a tune-up. The slowdown was no surprise. Financial markets want "Japanese" interest rates (the official rate is zero percent again) to boost stock prices. But profits rule and financial markets will follow the real economy. Massive rate cuts won't change the profit outlook in the near term and could produce a lot of economic mischief. Only five percent of all firms reported higher selling prices, down from 19 percent in June. This should give the Fed the room it needs to focus on the real economy. Odds are that 2001 will add 12 months to the record expansion, but it will look like slow motion compared to past years.

NFIB's Small Business Economic Trends, begun in 1973, is the longest continuous survey of small business optimism and conditions. It is frequently quoted by Federal Reserve Chairman Alan Greenspan and national media. Monthly surveys are sent to more than 2,500 NFIB members and quarterly surveys are sent to more than 7,500 members. The few minutes members spend completing the surveys adds to NFIB's stature as the source of the nation's foremost research about small business.

---

This article originally appeared in the May/June 2001 issue of MyBusiness Magazine, NFIB's member magazine.

Small Business Sound Off
Does this story hit home?  Share your story with us