Waiting for Another October Surprise
October 2008 was the month we met the Great Recession. Will October 2011 be the month we meet its successor?
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PrintOctober 2008 was the month that we were officially told that the U.S. economy was in recession. Had many small business owners known then how bad the “Great Recession” was going to be they probably would have closed their doors right then.
It has been a painful recession, and although the great government economists have proclaimed the first Great Recession ended months ago, it doesn’t feel like it for most mainstream small business owners. I predict October 2011 will be the month we learn that we have officially begun the second recession.
The most common academic definition of a recession is when an economy has two consecutive quarters of negative gross domestic output. So before we can “know” we are in a recession we have to experience those first two painful quarters.
Here are a few comparisons between 2008 and today:
- During much of 2008 we saw nearly all of the U.S. and foreign stock markets fluctuate in huge up and down swings. During the end of the second quarter 2011 and the beginning of the third quarter we have seen the average 401k owner lose all the gains they made since the fall of 2008. Stock markets have looked like the scariest roller coaster in the park.
- Consumers began seriously bracing for uncertain times in the summer and fall of 2008. I am not sure consumer spending ever really came back between the end of the Great Recession and today, but it is clear consumers are still braced for the worst to come. They are simply not spending money that would help our consumer-driven economy.
- In the middle and end of 2008 we had a lame duck President who did not have a Congress willing to do the hard work necessary to turn the economy around. Today again I believe we have a lame duck President, though this time we have until January 2013 before a new President takes office. Main Street business owners have not had any help from this administration or Congress. Our elected officials seem to ignore the point that small business owners create over 90 percent of all jobs. It is not big labor or big business, it is the small business that will bring the U.S. economy out of recession.
- Other nations' economies began experiencing their own economic woes in the fall of 2008, and this year some of them appear to be on the verge of collapse. What happens in Europe will affect us in the United States. It is one part of the global economy that many of us here don’t want to face.
- In the summer and fall of 2008 we saw banks nearly stop making small business loans. I can say we are at that point again based on my dealings with numerous banks during the last quarter. I have seen many of them make the decision to completely stop lending activity until they see some positive indicators that this potential second recession won’t be as bad as the first.
- We saw two very large small business lenders fail in the fall of 2008. Washington Mutual, a $329 billion bank, failed during the last few days of September 2008. Less than a month later, another small business lending giant, Wachovia, also failed. I continue to hear and read that some of the so-called “too big to fail” banks are having serious problems as their profits have plummeted and loan loss reserves have grown. I don’t believe October 2011 will see the kind of bank crisis that we saw in 2008, but I do think we have yet to see the first crisis really end.
Small business owners are tired and fatigued. Many of them have already closed their businesses. People like me were giving small business owners advice in 2008 like: Don’t watch television news, remember you aren’t a statistic, and adopt a “hunker-down” strategy until the recession lets up.
What should I be telling small business owners now?
Sam Thacker is a partner in Austin Texas based Business Finance Solutions and Texas PEO Group.
Direct Email: sam@bfs-usa.com
Twitter: @SMBFinance
