On Aug. 2, 2013, the Dow Jones Industrial Average, an index of 30 of America’s biggest and most well known companies, reached a milestone that it had never before seen: on this date, it closed at 15,658.36, its all time high. Although in the three weeks that followed, the index lost 4.13 percent when it closed at 15,010.51 on Aug. 23, it nonetheless sat 129 percent above its March 9, 2009 closing, when the Dow “bottomed out” at 6,547.05.
Imagine if your home was worth $250,000 on this important stock market date when the Dow began its ascent to its record high. If your home increased at the same rate, it would have been worth more than $573,000 just a few weeks ago.
You are not alone.
While the ink is bright green for the charts of Wall Street, there is a mixture of red and gray ink to describe what is in the carts of Main Street. While traders have been enjoying the benefit of strong breezes of “quantitative easing” and bond purchasing by the Fed to fill their sails, those who work in a much more local economic world ride choppy seas with headwinds of varying and uncertain origin.
What kind of waters do small businesses face in the months and years to come? The small business owners of everyday America will be challenged by headwinds coming from a variety of places that will impact both “top line” revenue numbers as well as “bottom line” earnings figures.
When it comes to sales and revenues, the economic weather reports paint the picture of a sea of mediocrity, with choppy starts and stops ahead for the foreseeable future. A slowly growing economy will ultimately lead to a rise in inflation and interest rates, and the increased demand will drive up oil futures which inevitably result in higher gas prices.
What will the rise in inflation, interest rates, and gas prices do to the amount customers of small businesses will spend as the economy grows? Inflation causes a rise in the prices of things we buy. Interest rate increases mean higher borrowing costs and rises in gas prices eventually reach every sector of the economy. In sum, while a growing economy might result in customers having more money to spend, forces such as inflation, interest rates, and gas prices limit what is available, and often cause the consumer, who makes up roughly two thirds of our economy, to scale back anticipated purchases.
For small businesses, “top-line” revenue growth can be difficult to achieve even in a growing economy, especially when the other half of the equation, “bottom line” profitability factors, are taken into consideration by small business customers.
For an examination of why boosts in bottom line profitability are equally difficult for small businesses, read Part 2 of this column series, coming soon.
Scott E. Pointner is the legal counsel for the Wheaton Chamber of Commerce.