Recovery? What Recovery?

Why entrepreneurs aren't so optimistic about the economy.

Don't tell me that the economy is getting better, or has even hit rock bottom. My faith in an imminent recovery deserted me on May 5, when one of our customers, Salyer American Foods, based in Monterey, Calif., suddenly fell into receivership. There had been little to no indication that the company was so close to financial ruin. As it turns out, the company's lenders say Salyer owes them over $34 million, a debt equal to almost half its sales. A company attorney told local media that tight credit markets and the economic recession had pushed Salyer over the edge. If the receiver doesn't find some way to revive the company's fortunes, our bag manufacturing company stands to lose nearly $1.5 million in revenue, about 2 percent of our $60 million in sales.

On the same day my customer fell into receivership, Fed chairman Ben Bernanke told a congressional committee that he believed the economy was in the process of bottoming out and "would turn up later this year." He's not alone in his optimism. Over the past two weeks or so, it has become a cottage industry among economists and the media to spot the first "green shoots" of a recovery. Certainly shoots there may be. The stock market has rebounded smartly over the past two months, as has consumer confidence. Pending home sales have ticked up, while unemployment claims are easing. And many economists insist a manufacturing revival is in the wings because inventories have fallen so low that restocking must begin soon.


But I haven't found many small-business owners ready to jump on the recovery bandwagon, and for good reason. We're still experiencing the "bottoming out" phase and worry that another bottom remains below this one. Call us pessimists, but we're not sure the green shoots aren't just weeds.

Who can blame us? Take the experience of a friend of mine, who runs a $6 million company that provides promotional material to businesses. His sales are down 20 percent compared with last year. Over dinner last week, he said he certainly wasn't shedding customers at the same pace he had been in the fall, but customers were still defecting. "I can't see any reason why they'd come back soon," he said. So he's getting ready for a second round of layoffs and plans to end spending on marketing until things look more promising.

He's not alone among my friends and colleagues in his sense that bad times may be here to stay. One friend just decided to abandon her two-year-old Web-based gift boutique thanks to declining sales. She has another friend whose promising e-business startup had its venture funding yanked when it failed to meet sales goals. "Two years ago they'd have been given time to work things out," she says. Instead they recently closed. Another friend of mine works for a commercial real-estate company that's instituting 10 percent wage cuts beginning in mid-May. "It's better than people losing their jobs," he said to me, "but I don't expect to be getting the money back any time soon." Given the growing worries about commercial real estate, he's probably right.

By Kevin Kelly - Newsweek

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