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04/22/2006: "What Will the Economy Do and What Will It Mean to Small Business Owners?"

A reliable source who works at a popular local east side Starbucks tells me that sales at that store are actually up despite the economic downturn and the high price of gas. She adds, however, that it is affecting the wait staff.

"People are leaving fewer tips and some people leave nothing," she says. She also said that other Starbucks stores in the city are not faring as well. "People on the east side like their coffee," she says. But she adds that the other stores are beginning to see a dip in sales.

On the other hand, a local used book store that always does a brisk business tells me that so far business is the same . . . they've noticed no difference at all. Whether that changes remains to be seen.

Right now the economy looks bad and worsening. However, that may not be the case. Financial Intelligence Report says, "We feel that oil prices will continue to dramatically fall in the next 12 months to $40 a barrel!"

There's no way to know if they're right or not but they were right when they predicted in April 2004 that oil prices would skyrocket from $29 per barrel to over $60 within 12 months.

If they're right, what we're experiencing may be just a blip on the radar. On the other hand, we could be at the beginning of a major inflation or worse.

Let's look at some figures. I'm told that figures, unlike words, don't lie.

The buying power of $1.00 in 1980 had the same buying power as $2.42 today. So people who compare the recession of the eighties to today have to do some heavy figuring and some are manipulating the figures. That means that a car you paid $10,000 for in 1980 would cost you $24,247.57 today. And that is about the average price of a car today.

The federal minimum wage in 1980 was $3.10. In 2005 the federal minimum wage was $5.15. In 1996 dollars the minimum wage in 1980 was worth $5.90. The minimum wage today in 1996 figures is worth $4.15. The buying power of $3.10 of 1980 takes $7.52 today. In other words it takes $7.52 in today's dollars to buy what you could buy for the minimum wage of $3.10 in 1980!

The average cost of a new home in 1981 was $83,000.00. A gallon of gas was $1.38 and the median household income was $19,074.00.

Today the median home price is $190,000. A gallon of gas is hovering around $4.00 and the median income is $65,093.

So the average cost of a home has doubled. Gas has more than doubled. But income has more than tripled.

The average inflation rate in 1980 was 13.58 percent. The current inflation rate is only 3.36 percent. So other than the average wage being out of whack things look better today than in the eighties even though many people are comparing the two periods as being similar.

On the other hand, one tends to worry just a bit when we learn that inflation was 0.00% in 1929. And that was one month before the crash!

The median income in 1929 was $5,373,200. That's 62,779.26 in today's dollars --- close to the current median income. It would take $11.68 to buy what a dollar bought in 1929. Gas was 0.21 cents per gallon. That's $2.45 in today's dollars.

What that tells me is that in 1929 before the big crash and the depression the economy was better in some ways and very close in other ways to what it is today.

The figures in 1929 were perhaps better than any time in recorded financial history. It was call The Gilded Age if you recall. The figures of the eighties were worse than our economic figures today. On the other hand our current figures compare very closely to 1929 before the crash.

Now I must qualify all of this by saying that these are figures I have researched and, while the figures are true to the best of my knowledge, I make no pretense of being an economist or even being able to manage a checkbook without Quicken. But the figures themselves do not lie. My interruption, of course, is open to debate. The figures do concern me.

So with all of this out of the way, in upcoming posts I'll bring you some tips on how to handle your own small business in these uncertain times. And more importantly, what to do about your advertising and marketing. I've seen people make big mistakes in uncertain times. Perhaps I can help you to avoid a few.

Stay tuned . . .