The HS Dent Financial Blog

RSS      

Tepid and Sluggish

We rather liked the words that the Wall Street Journal used to describe the nascent economic recovery: “Tepid Economic Data Suggest a Sluggish Recovery.”  This is more or less in line with the theme we’ve been covering recently (See prior posts).  Yes, economic activity is starting to happen again, but no, it’s not happening at the rate that it did before the credit crisis, and it’s not likely to get there again any time soon.

One reason for this is offered by a separate Wall Street Journal article: “Sharp Drop in Start-Ups Bodes Ill for Jobs, Growth Outlook.”

The Journal writes,

But this recession is taking a particularly heavy toll on business creation, as sources of small-business funding dry up and would-be entrepreneurs become more risk-averse. When entrepreneurs do launch businesses, they are hiring fewer employees on average. The trends threaten to damp growth in jobs and economic output for years….

Banks are reluctant to lend, especially to companies with weak or no credit history. In a July survey of more than 53 loan officers by the Federal Reserve, more than one-third reported tightening terms for small-business loans in the prior three months, while only one reported easing terms.

Small businesses are the lifeblood of the economy.  But when they are starved of capital, that blood pumps a lot slower.  Bottom line: get used to the New Normal, and set reasonable expectations.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy