Economic Outlook: 2006 Will Wrap Up OK
Spending will slow but small business in good shape, economists say
What will the economy look like for the rest of the year, and what will that mean for small business? It's not going to be as bad as many small-business owners expect, according to NFIB Chief Economist Bill Dunkelberg and Wayne Best, senior vice president of business and economic analysis for Visa, who offered their economic forecast to Leadership Trust members during the National Small-Business Summit. Still, small businesses should brace for a slowdown in the coming months.
"We aren't going to see the economy fall off a cliff, but we are seeing a slower trend in consumer spending," Best said.
Considering the rapid pace of consumer spending earlier this year, the spending slowdown isn't surprising, the economists noted. Growth in the stock market and home equity earlier in the year allowed consumers to spend more than they were making, but such shopping sprees are starting to take their toll as inflation, energy prices and interest rates rise.
Despite employment and wage growth, "we, as consumers, are spending every nickel we are making, plus borrowing money," Dunkelberg said. This is especially true of lower-income families who have credit card debt, but don't own homes and have little or no stock—though consumers in this group "aren't going to be the ones who derail the economy," since they account for less than half of the nation's spending, Best said.
The good news is that the economy is friendlier to businesses these days. Profits are the highest they've been since World War II, Best says. The environment is ripe for business expansion with planned capital outlays holding steady, and credit to finance operations still easy to obtain, according to Dunkelberg. Only about one in four businesses are raising their prices to keep pace with the economy, he added.
Job creation looks strong, with "employment numbers the highest they've been since the dot-com era," Dunkelberg said. Despite the tight labor market, small businesses are responsible for the bulk of the jobs created this year—and are keeping these hires by gradually increasing employee compensation.
With more people going back to work and pinching their pennies, consumers will spend less on durable goods and "stuff" and more on services in the third and fourth quarter, the economists predicted.
"People are more pressed for time than ever before, and personal and recreational services, along with health-care expenditures, will take more of a pace into the future," Best said. "The travel industry will also do well because people are looking for an escape and change of pace in their lives."
Business- to-business spending will continue to pump trillions of dollars into the economy, which will soften the impact of the slowdown the country is starting to experience now, Best predicted.
Even so, "it is going to be a different environment, and we need to be aware of that and be thinking about it," Best told small-business owners. "We can't look at what happened in the first half of this year and expect it to be the same."
The NFIB Leadership Trust is an exclusive group of distinguished business leaders who support NFIB's efforts to elect pro–small-business candidates at the state and federal level and educate voters about our issues. The group's annual meeting was held this year in conjunction with the NFIB National Small-Business Summit, presented by Visa. Hundreds of small-business owner-activists came to D.C. from across the country for the dual event.
