NFIB

Small Business and the Aftermath of Sept. 11 -- An NFIB Update
10/23/2001

The following is an update on the state of the small-business economy as of Oct. 11, 2001. It includes a brief report on security measures, business travel, and other responses to the Sept. 11 attack. The update is based on data from a national sample of 400 small business owners. It contains a New York City supplement. These data are current as of Oct. 18 and are based on 300 interviews with small business owners in the city exclusively. These data supplement NFIB's monthly Small Business Economic Trends. September's Small Business Economic Trends showed a sharp decline in small-business activity and confidence in the post-Sept. 11 period. However, the level remained well above those in the early 1990s. October's edition of the SBET will be available in mid-November.

Small Business Economic Activity
The attack clearly damaged small-business economic activity. Thirty-four (34) percent said that their sales are lower since September 11. Two-thirds attributed the decline primarily to the attack and most of the remainder believed the attack is a major reason. Though halting, sales are picking up. Nine percent reported sales are picking up "a lot" while 37 percent say sales are picking up "a little." The 12 percent who reduced their labor forces or refused to fill job vacancies since September 11 also most often attributed their actions primarily to the attack. However, the proportion who reported negative employment activity is not abnormally high. Given the circumstances and investment cuts, such restraint is notable.

Investment appears to present the largest challenge. Thirteen (13) percent reported business investment plans have been cancelled, postponed or delayed. (About 30-35 percent typically plan one or more business investments for the next three to six months; about twice that number actually do.) While only a few have cancelled plans, most of the remainder have put them off indefinitely or until next year. Credit is not generally the problem. Just 2.5 percent indicated difficulties accessing business loans since September 11. However, a plurality (42 percent) believed that additional government guaranteed loans to small businesses would have a small positive impact on the local economy.

Security and Business Travel
Most small-business owners are not rushing out and taking numerous, expensive security precautions. Just 14 percent said that they have increased or plan to increase security measures in their businesses as a response to September 11's attack. Specific measures taken vary widely - from putting together a disaster plan to more careful examination of goods received. Ten (10) percent have been directly affected by the increased security measures of others. Again, the specific measures affecting these small businesses vary widely. Examples include greater difficulty shipping by air, slow response to supply purchases, and limited access to potential customers. However, the new emphasis on security will raise business costs. Eighteen (18) percent project that their security costs will rise, though over half see those new costs as "minimal."

Small-business owners have cut back on business travel somewhat and will continue to do so. Twenty (20) percent cancelled, postponed, or delayed business travel in response to September 11's attack. Almost one-third of those suggested that the changes were in response to the closing of airports (involuntary reduction). Yet, of the approximately two-thirds who travel on business, only 70 percent said that they have or will soon resume normal business travel. Over 15 percent who have previously used air transportation for business purposes reported that they no longer will.

Eight percent indicated that they will make changes other than in security and business travel in response to September 11. Most of those changes involve economic adjustments. Postponed purchases, downsizing, staying liquid, and "tightening the belt" were typical responses. Many also mentioned increased vigilance. The owner of a trucking firm, for example, noted greater caution on the road and watching where they (employees) park their vehicles.

Normalcy
Most small-business owners believe that business activity will return to normal next year. However, more forecast normalcy will return in the latter half of the year (36 percent) than in the first half (28 percent). A relatively large 14 percent could not or would not offer an opinion. Many of those felt a return to normal business activity is tied to the duration of the war.

Tourism Impacted Small Businesses
Seventeen (17) percent of small business owners said that they are directly impacted by tourism. The affects of September 11's attack are, not surprisingly, far greater on those directly impacted by tourism than they are on the population as a whole. For example, 54 percent of those with tourist impacted businessesreported that their sales have declined since September 11 compared to 34 percent of all owners (30 percent of non-tourism-related businesses). They are also twice as likely to have cancelled, postponed, or delayed business investment and almost twice as likely to have reduced employment or not have filled vacancies. While they are more likely to believe additional government guaranteed small business loans would have a large positive impact on the local economy, they have experienced no more difficulty to date accessing loans than have others.

Small-business owners in tourism impacted firms are also about 50 percent more likely to take and be affected by security measures than are all owners. Still, only 20 percent have taken or plan additional security measures; only 15 percent said that they are impacted by the additional security measures of others. They are also almost twice as likely to believe that the new security measures will raise their costs and their estimates of those increases are higher. Their recent experience and plans for business travel are similar to the broader population.

New York City
New York City bore the brunt of September 11's attack. Small businesses in the city are now bearing a disproportionate share of the economic fallout. A "rule of two" seem to apply to almost every economic indicator. Almost two-thirds (65 percent) of New York small business owners reported sales declines since September 11 - virtually twice the proportion reported throughout the country. However, half indicated that sales were picking up. Twice the number in New York as elsewhere in the country have cancelled, postponed or delayed business investment plans in the wake of the attack (27 percent compared to 13 percent). And, twice as many have reduced their labor forces or failed to fill vacancies since September 11 as found elsewhere in the United States. Since almost twice as many in New York appear interested in a business loan of some type as throughout the country, twice as many (five percent) have experienced difficulty accessing one. Twice as many feel that additional government guaranteed loans to small businesses would have a large positive effect on the local economy (41 percent compared to 21 percent). While almost 10 percent were forced to switch suppliers due to the damage caused other firms, few have struggled to make the adjustment.

New York small business owners are also much more security conscious than their colleagues throughout the country. Almost twice as many have taken or plan to take new or additional security measures. Not surprisingly, virtually one in three (32 percent) have been affected by the increased security of others; that is three times the national rate. New Yorkers were also twice as likely to report changes in business operation besides security and business travel (18 percent compared to eight percent).

But on one special point, New York small business owners did not vary from the country. Their estimates of the time it will take business activity to return to normal paralleled those of small business owners throughout the country.