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The Small Business Economy — 1981 Excerpts from an NFIB Report

The Small Business Economy — 1981 Excerpts from an NFIB Report The Small Business Economy - 1981 Excerpts From An NFIB Report **Nineteen eighty-one was a bad year for small business. The fact the 1981 constituted the second consecutive bad year only compounded the problem. Not since 1978 has small business experienced a reasonably good period. **Caught between unprecedented interest rates, a high - even if declining - inflation rate, and slow sales, small business earnings were badly squeezed. The population responded by reducing employment, investment, and inventory as best it could. But many simply didn't make it. **With a significant decline in the inflation rate and persistently high interest rates (both nominal and real rates) the basic problem of small business shifted in 1981. Financing - interest rates replaced inflation as the single most important problem. **The variance in interest rates experienced by small business in late 1980 and early in 1981 was replaced by more uniform rates at increasingly high levels, until the fourth quarter. Virtually all "cheap" money, located primarily in rural areas, dried up later in the year. **As interest rates rise, small business borrowing should be expected to fall. While the percentage of borrowers over 1981 was lower than in recent years, it remained relatively high. The reason is because high inflation rates and slow sales cause cash flow problems which generally can be resolved only through borrowing. **The reduction in growth of the consumer price index in 1981 was reflected by prices small business charged. The percentage of small firms raising prices declined by more than 35% over the year. **The indices of both small business sales and small business earnings fell well below the 1975-1979 average. **Small business earnings fared best in West South Central States and New England, and worst in the Great Lakes area and East South Central Region. (Data is by region, not by states). **With inflation, high interest rates, and slow sales, small businesses were forced to cut costs. One area of cost cuts was employment. Employ­ ment in operating small businesses declined on a seasonally adjusted basis in every quarter of 1981. (These data do not include any small business employment generated as a result of net new business formations.) **Small business generally has difficulty locating skilled employees. As a result, skilled job openings in small business are a good indicator of the demand for labor. Throughout most of 1981 the number of skilled job openings was relatively low until the last quarter when it dropped sharply. **Plans to make a capital expenditure rebounded from 1980 levels and then deteriorated. Actual capital expenditures of over $5,000 in a six month period were little better than in 1980. Tum to: Small Business Economy - 1981, page 49. 40 American Journal of Small Business, Vol. VI, No.4, April-June 1982 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Journal of Small Business SAGE

The Small Business Economy — 1981 Excerpts from an NFIB Report

American Journal of Small Business , Volume 6 (4): 1 – Apr 1, 1982

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Publisher
SAGE
Copyright
© 1982 SAGE Publications
ISSN
0363-9428
eISSN
1540-6520
DOI
10.1177/104225878200600407
Publisher site
See Article on Publisher Site

Abstract

The Small Business Economy - 1981 Excerpts From An NFIB Report **Nineteen eighty-one was a bad year for small business. The fact the 1981 constituted the second consecutive bad year only compounded the problem. Not since 1978 has small business experienced a reasonably good period. **Caught between unprecedented interest rates, a high - even if declining - inflation rate, and slow sales, small business earnings were badly squeezed. The population responded by reducing employment, investment, and inventory as best it could. But many simply didn't make it. **With a significant decline in the inflation rate and persistently high interest rates (both nominal and real rates) the basic problem of small business shifted in 1981. Financing - interest rates replaced inflation as the single most important problem. **The variance in interest rates experienced by small business in late 1980 and early in 1981 was replaced by more uniform rates at increasingly high levels, until the fourth quarter. Virtually all "cheap" money, located primarily in rural areas, dried up later in the year. **As interest rates rise, small business borrowing should be expected to fall. While the percentage of borrowers over 1981 was lower than in recent years, it remained relatively high. The reason is because high inflation rates and slow sales cause cash flow problems which generally can be resolved only through borrowing. **The reduction in growth of the consumer price index in 1981 was reflected by prices small business charged. The percentage of small firms raising prices declined by more than 35% over the year. **The indices of both small business sales and small business earnings fell well below the 1975-1979 average. **Small business earnings fared best in West South Central States and New England, and worst in the Great Lakes area and East South Central Region. (Data is by region, not by states). **With inflation, high interest rates, and slow sales, small businesses were forced to cut costs. One area of cost cuts was employment. Employ­ ment in operating small businesses declined on a seasonally adjusted basis in every quarter of 1981. (These data do not include any small business employment generated as a result of net new business formations.) **Small business generally has difficulty locating skilled employees. As a result, skilled job openings in small business are a good indicator of the demand for labor. Throughout most of 1981 the number of skilled job openings was relatively low until the last quarter when it dropped sharply. **Plans to make a capital expenditure rebounded from 1980 levels and then deteriorated. Actual capital expenditures of over $5,000 in a six month period were little better than in 1980. Tum to: Small Business Economy - 1981, page 49. 40 American Journal of Small Business, Vol. VI, No.4, April-June 1982

Journal

American Journal of Small BusinessSAGE

Published: Apr 1, 1982

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