Misery Index: Fuel for Your Small Business

I wanted to believe the economy was improving, didn't you? With ongoing busy foreclosure activity; millions of houses as shadow foreclosure inventory on bank books, but not on the market yet; home prices continuing to drop in several regions of the country, where I've tracked real estate over the past decade; uncounted millions unemployed, who exhausted benefits and no longer show up in official statistics; plus many super qualified people who remain under-employed, I could not see economic improvement as a trend – much as I wanted to believe.

This week brought an economic reality check:

• During April, traditionally the prime spring home buying month, new home sales dropped 0.8 percent from March although sales were expected to increase. That’s down 12.9 percent year-over-year, from April 2010.
• More than 422,000 people filed for new unemployment benefits during the last week of May.
• And then the dreaded jobs numbers came in at less than one-third of an expected 170,000. Only 54,000 private sector jobs were created in May.
• The combination of jobs lost and jobs not created moved the unemployment rate up from 9.0 to 9.1 percent, when a decline in the unemployment rate was anticipated.
• Inflation crept up from 3.1 to 3.2 percent.
• The sum of the inflation rate plus the unemployment rate combine to form the Misery Index. The official Misery Index is 12.3 percent. However, because there are millions unemployed who are no longer counted, 12.3 must be perceived as low. The highest Misery Index was 21.98 in June, 1980.

Balance sheets of mega corporations with offshore tax advantages or significant government subsidies show stellar profits, and some fortunate businesses that serve inflation resistant niches thrive forth. However, I’m a great believer in parking lot economics. When it’s easy to park at WalMart and Sam's Club over an extended period, you know earnings will be down long before they announce their financials. While WalMart made their first quarter numbers, when online sales are not included, same store sales in the U.S. dropped. This is true for numerous lower priced chains, indicating consumers feel strapped.

As a small business owner, what can you do with this information? Beware of the yuck factor. No one knows whether this slippage is a temporary aberration or the beginning of a feared double-dip recession. Don’t mire yourself in the yuck.

We know potential financial constraints call for sober planning. This is the time to consider vulnerabilities in your business. Every enterprise offers unique opportunities and its own set of challenges. What can you do to ensure your financial success if a second recession takes its toll? Think about it now. If a slowdown means you’ll need operating capital, apply for it now – while business is steady and your bank or credit union has every reason to assist you with your business growth. If you need product diversification, organize for it now. Plan so you can triumph.

Use negative financial data to your strategic advantage as you create your business's successful future.