5 Silver Linings (That's Right!) of the Recession

The recession has a hidden bright side.


It's a dumb idea to make light of a recession when the US is smack in the middle of one. Phil Gramm, a former U.S. senator and John McCain presidential adviser, got in big trouble last summer when he deemed the U.S. "a nation of whiners" because of our economic complaints. More recently, Bishop Richard Chartres in Great Britain faced anger when he said that workers who lose their jobs may be relieved to escape from a busy professional life. While it's important not to ignore reality, for businesspeople -- or people hoping to start a business -- wallowing in despair is just as unproductive as minimizing the pain. Confidence among U.S. small-business owners is low and falling like a brick. The February 2009 Small Business Economic Trends survey from the National Federation of Independent Business found optimism to be at the second-lowest reading in the survey's 35-year history. Are there any facts about the recession that might reverse that pessimism? Here are five rays of sunshine that give some hint that the recession economy might not be as gloomy as many might think.

Recessions are good for start-ups. Sometimes it takes a crisis for people to figure out what they really want. So if history is any guide, many of those unemployed are likely to become start new businesses. "When people have good jobs, they think, 'I don’t want to risk losing my job,'" says Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University. Job security, it turns out, has a dampening effect on entrepreneurship. Data from the Small Business Administration shows that during the last two recessions, there were more small businesses with employees started up than there were that went out of business. In a recession, "people who have had the idea of being an entrepreneur in the back of their heads--now they can do it," says Chad Moutray, chief economist at the SBA's Office of Advocacy.

Borrowing costs are lower. Banks are more careful about lending out money following a near-credit collapse in the fall. But those able to find loans to finance projects face lower borrowing costs than before the recession due to lower interest rates. The U.S. prime rate has fallen from 8.25 in September to 3.25 today. Furthermore, according to the Federal Reserve, the average effect rate for all commercial and industrial loans has fallen from 6.30 in November of 2007 to 3.33 in November of 2008. That makes borrowing much cheaper. "People who do want to grow their businesses can now do so," says Moutray.

There's a bigger market for outsourced duties. The economy is forcing almost everyone to make cutbacks. Many large companies want to cut costs without shrinking their businesses. Opportunity can be found for small businesses when large businesses try to find ways to do the same things with reduced staff. Larry Harding is CEO of High Street Partners, a firm that handles tasks that large and medium-sized businesses expanding abroad don't want to pay to do themselves. That can be anything outside the core duties of the business such as payroll and accounting. Harding says he expects his competition to get fiercer as more large, publicly-traded companies try to shave off these non-core duties--and more smaller firms try to compete for their business.so it what we are saying is that more people will be jumping in this field -JMPeth 2/17/09 11:15 AM "Outsourcing firms tend to have very brisk business during downtimes," he says.

[To read more about how to start a business like this, read one of the 15 best small businesses to start in 2009, Outsourcing Manager.]

Some industries grow in a recession. A bad economy is not bad news for every type of business. In fact, some industries actually thrive in bad times. "There are always things that are countercyclical," says Shane. Census Bureau data shows that four types of businesses grew in the last two recessions in the early 90s and earluer this decade: banking-related businesses, accident and health insurance, health practitioners like physical therapists, and business consulting services. In this recession so far, the Bureau of Labor Statistics finds that one of the industries actually adding jobs is education and health services. But, Moutray says, it's actually the health, and not the education, part of this sector that is driving employment growth. "People continue to have a demand for medical care," says Moutray. Another industry expected to expand is the construction industry, which is receiving a windfall in the form of President Obama's stimulus package, which contains billions for new projects. This might be good news for small firms, considering they comprise 85 percent of the construction industry.

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