by Devon Wolfe, Pitney Bowes Business Insight
Though the rising Dow Jones average indicates a recovery of sorts, we still are seeing tepid results at the local level. What’s the disconnect?
As one who studies consumer behavior, my biggest concern in this Great Recession has been the collapse in demand. As long as individuals and businesses believe that they can live without spending (or worse yet, as long as they don’t have money to spend), demand is going to be weak. And of course, demand is trickle-up! If the bottom isn’t buying, it creates a ripple effect throughout the supply chain. This is why inventories are so low right now.
Many have lamented about the plight of the small business in the recovery, claiming that lack of credit and uncertainty about health care and taxation are causing small business to sit on the sidelines. But recently, I ran across an article in the Washington Post that seems to confirm what I’ve suspected all along. Citing a survey by the National Federation of Independent Businesses (NFIB), “51 percent of small-business owners reported a lack of sales as their greatest challenge. Only 8 percent cited a lack of loans.”
In other words, capital is part of the problem—but coming up with something people want to buy is a much bigger problem. Now apply this to commercial real estate. Ancillary tenants—the little guys—are the tenants that are the most profitable to shopping center owners, making up for the low-rent deals that the anchor tenants pay. If they can’t lease up (as we’re seeing), real estate cash flow and profitability will continue to be challenged. Given the debt burden—well, you get the picture.
In the end, until we get the consumer confident and spending—that means employment and an end to the fear of job loss—demand will continue to be weak.
