A Small-Business Depression? Think Again

Credit markets are not frozen yet, and it's nothing compared to 1929


The year that everyone seems to be thinking about is 1929. There are constant reports that we are witnessing a financial collapse unparalleled since that year and that drastic action is needed to prevent a second Great Depression.

But when it comes to small businesses, we don't need to go back to 1929. Is the economic downturn hurting them even as badly as recessions did in recent decades? I quoted National Federation of Independent Business chief economist William Dunkelberg in an article the other week where he argued that credit problems are not nearly as bad now as they were in the recession in the early '80s, for example.

Now Dunkelberg has released the October NFIB Small Business Trends survey, and it gives further evidence that things are not spiraling out of control even though the results come from the month of September, when panic was in the air. It surveys a random sample of NFIB's half-million members. Optimism in September was actually slightly up compared to August. The actual interest rate on short-term loans paid by borrowers is only slightly up from 6.9 to 7.1 and actually down from 9.0 a year before. Three percent say that finances and interest rates are their No. 1 problem, the same as a year before.

The best sign looking ahead is that the number of small-business operators who think conditions will be better in six months had a big jump—from 4 percent in August to 14 percent in September. On the other hand, business owners are hurting in the meantime—actual earnings were down 35 percent, compared to a drop of 20 percent in September of 2007.