May 1, 2009 / 2:44 AM / 8 years ago

Small businesses dig in heels as recession bites

6 Min Read

<p>President Barack Obama (L) greets a participant in an event on helping small businesses recover from the economic crisis, in the East Room of the White House in Washington in this March 16, 2009 file photo. As the severe recession in the United States chills activity in most industries, many small business owners like Vanessa Baug are refusing to give in, determined to fight to the bitter end.Jason Reed/Files</p>

WASHINGTON (Reuters) - Vanessa Baug knows as well as anyone how the recession has ushered in a new era of frugality for Americans. Sales at her once-thriving jewelry store have plummeted. Some days she sells nothing.

"When times were good we were seeing 50 percent more traffic than we are seeing now" at Baug's Vanessa Fine Jewelry in Lakewood Ranch, Florida, she said. She will fight to the bitter end to keep her store open, she said, and is taking on more jewelry repair orders to keep cash coming in.

Margaret Van Voast, who runs a construction management outfit in Falls Church, Virginia, has also seen a decline in contracts. She has downsized her staff to one from four and has enough work to last until the end of the year.

"We are just looking around for other opportunities, things we can do for backlog going into 2010," said Van Voast.

The deep and protracted recession, prompted by the worst global financial crisis since the Great Depression, has chilled activity in most U.S. industries and slashed Americans' discretionary spending. Owners of small business, especially in the hard-hit retail and home construction sectors, are marshaling all of their resources to survive.

Since the start of the downturn in December 2007, over 5 million jobs have vanished, and analysts say unemployment is set to continue rising well into 2010 -- even after the economy ceases contracting. The jobless rate hit a 25-year high in March of 8.5 percent, and is expect to go higher when the rate for April is reported May 8.

Economists said soaring unemployment was the reason small businesses were trying to keep doors open even as demand for their goods and services fell.

"The challenge for millions of families is you cannot simply give up," said Heather Boushey, a senior economist at the liberal Center for American Progress in Washington. "People need employment to pay the rent and mortgages. As individuals, they cannot give up. They don't have that luxury."

'We Will Overcome'

Many people who are still employed are seeing their household wealth slump by creating house and stock market values. Others fear being laid off and are delaying spending, especially on luxury items like jewelry.

In Baug's attempt to keep her 10-year-old business afloat she has trimmed her jewelers' work week to four days from five.

"The cutbacks are helping a bit. We have not let anyone go, but we probably will soon," said Baug, who employs four people.

As for closing the shop, that was not an option, she said.

"I am 55-years old. My jewelry business is me, it is who I am ...," said Baug. "I love the business and I refuse to let this (recession) get the better of me. We will overcome. I am not sure sometimes how, but we will."

She will need all the resilience a solo business owner can muster. The slump in jewelry demand, for instance, has hurt national chains like Zale Corp, which in February announced it will close 115 stores.

The U.S. Chamber of Commerce in Washington estimates that there are 27 million small business owners and contractors in the country. And the U.S. Labor Department said the self-employment rate in nonagricultural industries fell to 6.9 percent last year, the lowest since records started in 1948. This represents a drop of about 330,000 jobs from 2007.

Amid the Ashes, Opportunity

While the harsh economic environment has sunk many small entrepreneurs, some are finding opportunities away from the retail and home building sectors.

"This is the best of time or the worst of time" for entrepreneurs, said Gene Fairbrother, a small business consultant at the National Association for the Self-Employed.

"It all depends on the type of business one is in. There are probably as many opportunities as there are misadventures," he added. "People are finding opportunities in the services industries -- plumbing, landscaping and accounting -- services that people require regardless of their budgets."

Fairbrother said that while the mortality rate of small businesses was likely to increase, most entrepreneurs who had been squeezed out nearly always started another business venture.

And the recession has not deterred newly laid off workers from venturing into self-employment. Both the Chamber of Commerce and the National Association for the Self-Employed reported an increase in the number of people seeking information about starting their own business.

Most of these people are starting ventures related to their previous employment and are using severance packages and savings to fund their businesses.

"The demand may not be there, but people will still find little niches where they can survive. It is not as easy as it was three or four years ago," said Giovanni Coratolo, vice president of small business policy at the Chamber of Commerce.

For Arnie Brown, the constant effort to keep his fast-food business afloat amid the rising tide of bills proved too much. He closed his Caribbean eatery in July.

But for small business owners, hope springs eternal. Brown said he hopes the federal government's $787 billion stimulus package revives the economy so he could open another fast food joint.

Editing by Philip Barbara

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