In volatile market, companies can plan for possible slowdown

By Joyce M. Rosenberg
AP Business Writer

NEW YORK (AP) - As the Dow Jones Industrial Average seesaws and mostly drops by hundreds of points a day, Kathy Barnes sees the impact of the volatility on homebuilders and general contractors in the St. Louis area.

Barnes, who helps these small business owners manage their projects, says her clients are worried that the bull market that gave customers the confidence to do major work on their homes is at an end. Builders are investing in fewer properties and contractors are handling smaller-scale renovations.

"People are holding back for fear of the worst," Barnes says.

Although the overall economy and consumer spending have been strong, some small business owners, particularly those who supply big-ticket items and services like home remodeling, are feeling the effects of volatility in stocks that has persisted for much of this year. And some small companies seeking investors are finding resistance, even from people who just a few months ago were willing to put their money down.

As of Monday, the Dow was down nearly 19 percent from its record high of 26,828.39 reached Oct. 3 and the Standard & Poor's 500 Index was down nearly 20 percent since it peaked at 2,930.75 Sept. 20, but the gyrations started back in January. Investors have been troubled by the prospect of slower economic growth in 2019, and concerns including the impact of Trump administration trade tariffs on U.S. companies.

Government reports on retail sales and consumer spending show few signs that consumers are anxious, and while the Conference Board's monthly Consumer Confidence Index fell a little over 2 points to 135.7 in November, it was still near its highest point in 18 years. But many business owners remember the devastating losses stocks suffered in 2008 and their impact on consumer spending.

When consumers start feeling uneasy or less wealthy, they forgo or postpone the big discretionary items on their budgets, says Priya Raghubir, a marketing professor at New York University's Stern School of Business.

"Large expenses such as home renovations, cars, all of those could be put on hold," Raghubir says.

Barnes' clients are buying cheaper building materials because of homeowners' smaller budgets.

"I've seen a tremendous decline when it comes to discretionary items - cabinets, flooring, things that you have some choice about," Barnes says. She also sees general contractors handling more of the work themselves instead of using subcontractors, a way to preserve their profit margins.

Continuing volatility can lead consumers to spend less even if they don't consciously feel anxious, says Burt Flickinger, managing director of Strategic Resource Group, a consultancy based in New York. But small businesses will notice.

"Even if someone's a viable and successful inline retailer, restaurant, salon or service company, their customer counts can be cut by 25 percent or more through no fault of their own," he says. Flickinger noted that stock market volatility in the past contributed to the collapse of plans to build big retail projects.

Owners who recall uncertain times in the market are looking for signs that their companies might be affected by current fluctuations. Mark Ehrhardt, who owns a moving company in New York, says he starts to see his business slow about six months after the market becomes turbulent.

"Stock market volatility, and (economic) downturns tend to hit the ground level by causing the general public to sit on their hands before making large financial decisions," says Ehrhardt, owner of Movers Not Shakers. Ehrhardt, a stock broker before he went into moving, is prepared to step up his networking with building managers, mortgage brokers and title companies if requests from homeowners start to slip.

The fallout Steve and Bea Fisher are seeing comes in the form of investor and supplier anxiety. Bea Fisher plans to open a hardware store in a rural part of Nevada early in 2019. Most of the people who were excited about investing in the store a few months ago have turned hesitant, not returning calls or texts as they once did. And even an investor who came through last week was also a little cautious, asking Fisher, "what are you hearing from other people?"

It's "not easy when potential investors watch five or six figures of worth wiped from their accounts in a single day. It does affect the conversation. How do I know? They tell me," Fisher says.

Fisher also sees a shift in suppliers' attitudes. A few months ago they reassured him that "we'll give you everything you need," but now they're warning he'll need to pay up front.

"You can feel terms changing on the fly," he says.

Jeff Rizzo says he nervously watches the stock market every day. Rizzo, who co-owns The Slumber Yard, the operator of product review websites, says "we are 100 percent at the whim of consumer demand."

"The more consumers shop, the more they search for reviews. If consumer spending dips, we will certainly feel it," says Rizzo, whose company is based in Reno, Nevada.

This has him looking more cautiously at 2019. The company, which has about 10 employees, is trying to expand.

"We still plan to hire more employees come the new year, but we are going to do so at a slower pace so that we can see what happens in the broader economy," Rizzo says.


Preparing for a slowdown

By Joyce M. Rosenberg

AP Business Writer

NEW YORK (AP) - The stock market's volatility this year has some small business owners deciding to run their businesses more cautiously.

Consumer spending and the economy are strong and many businesses report all is well. But some owners are worried because their customers are spending less.

Some owners are thinking of taking fewer risks. One concern is that the gyrations are a harbinger of recession; investors tend to buy and sell based on what they think the economy will do in six to nine months. And while the market has been right before - as in mid-2007, when it began falling half a year before the Great Recession began - it's not foolproof. Chester Spatt, a finance professor at Carnegie Mellon University's Tepper School of Business, notes that when the market crashed in October 1987, "that fall was not really associated with a material change in business."

Still, when there's volatility, "businesses may react, for example by reducing their orders in advance," Spatt says.

What some owners are doing:

- Cost-cutting is becoming a priority. In the home remodeling industry, contractors are using cheaper materials as customers lower their budgets on projects. The frugality extends to developers who build houses - they're making smaller investments in new properties, says Kathy Barnes, who helps manage projects in the St. Louis area.

- The Slumber Yard, which operates product review websites, will hire more slowly next year, co-owner Jeff Rizzo says. Owners have been conservative about hiring since the recession, and market volatility is likely to make some even more cautious. They're likely to deal with slower hiring in the same ways they've handled the lack of qualified candidates for their job openings: In a Bank of America survey released this month, owners said outsourcing work or taking on more tasks themselves were ways they've coped. They're also training current staffers to give them more skills.

- Prospecting for business, something many owners do continually, is becoming more important. Mark Ehrhardt, owner of Movers Not Shakers, a moving company in New York, is ready to start contacting mortgage brokers and building managers, who know of people selling their apartments and homes and moving. "You just have to be smarter and figure out where the activity is," he says.

- Entrepreneurs having a harder time getting investor money are putting Plan B together. When it looked like Steve and Bea Fisher wouldn't get investors for a hardware store in a rural part of Nevada, the couple looked at their savings and began inquiring about non-traditional lenders. But they found that lenders, even those catering to small businesses, offered only small amounts, sometimes $2,000 out of $10,000. "We thought we might be forced to dig a little bit deeper into our pockets," Steve Fisher says.

Published: Fri, Dec 28, 2018