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The “Recesion-Proof” Myth

Richmond BizSense March 26, 2008 0

When I ask small business owners if they’re seeing a slowdown, I’m told that invoices are taking longer to get paid, that expansion plans are getting put on hold, or that new contracts are slower in coming than in the past. Construction and auto dealers so far appear to be suffering the most.

But any admission of slower growth is always followed by the same phrase: “But we’re pretty much recession proof.”

“Recession” is a dirty word around these parts.

Any mention of the subprime fiasco that has been dragging down the housing sector always seems to be accompanied by a glass-half-full phrase like, “But it’s not nearly as bad here as in California or Nevada.”

When I ask small business owners if they’re seeing a slowdown, I’m told that invoices are taking longer to get paid, that expansion plans are getting put on hold, or that new contracts are slower in coming than in the past. Construction and auto dealers so far appear to be suffering the most.

But any admission of slower growth is always followed by the same phrase: “But we’re pretty much recession proof.”

Somehow all the companies I interview are always “recession proof.”

Entertainment companies: recession proof, because even if area workers get laid off from their job, or don’t get a raise, or are pinched by high gas prices, they need recreational outlets to feel better.

Marketing firms: recession proof, because even if the economy slows, clients must try extra hard to reach customers, and that means more ads and marketing.

IT support: recession proof, because companies need to keep their work stations humming and more efficient workers can cut payroll costs.

Moving companies: recession proof, because homeowners and other businesses always need to move.

Wishful thinking, but with all due respect, I’m not buying.

I’d venture that almost all business are not recession proof. In fact, unless a business is the cheapest in its industry, I say it’s recession-prone. Someone can always downgrade and get something cheaper – that’s why Wal-Mart is seeing growing sales figures lately – or postpone a purchase altogether.

Perhaps area business owners tell me this to help win the battle for hearts and minds. The psyche of the consumer (both general shoppers and the business owner who buys other business services) is at the core of any talk about recession. Consumer spending comprises about 70 percent of the U.S. economy.

If Joe Consumer feels wealthy because the value of his home is rising (on paper) and he can tap that value or feels wealthier. Throw on the party hats because he’s a-going spending. Maybe he patronizes a high-end grocer, which then spends the money at a local baker, who then hires a local consultant to help find new locations. Rinse. Repeat.

But now the value of Joe Consumer’s home is likely plummeting. If Joe owns shares of certain local-based publicly traded companies that have both tanked in the last year (such as Media General or Circuit City), he’ll feel less well off and might hang on to his greenbacks. That’s less money for the high-end grocer, the local baker and the local consultant, not to mention whoever else was on the receiving end of Joe Consumer’s once-carefree ways.

The trickle down also trickles up, or something. Once that spending tightens in the consumer sector, the b2b sector can’t be far behind.

But here’s where it gets funky. Some business people blame the media for the current slowdown. Bankers and Realtors tell me that headlines have home buyers sitting on the sidelines even though now is a great time to buy, they say. Sadly, I never have a pithy retort.

But let’s remember that, by their thinking, housing is pretty much “recession proof” because people always need homes.

And you only need to take a look around to see where that has gotten us.

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