Economic Sentiment Low Among Cost-Conscious Businesses, Report Finds

Cost-conscious businesses keep a lid on ad spending and prepare for what many of them believe will be a lackluster holiday shopping season.

A quarterly survey of more than 12,000 midmarket companies by small business social network MerchantCircle finds just 23 percent of merchants believe that the worst of the recession is behind us, though only 5.7 percent expect their businesses to fail.

The survey found that 47.3 percent of merchants disagree or strongly disagree with the statement, "The worst effects of the recession are behind us"; 23.2 percent of merchants believe that the worst of the recession's effects are behind them, and 29.6 percent neither agree nor disagree.

However, 73.9 percent of merchants believe that their business will survive the recession-5.7 percent of merchants indicate they do not expect their business to survive and 20.4 neither agreed nor disagreed with the statement, "My business will survive the recession." Forty-two percent of merchants surveyed said they would not start their business again in today's economic climate. When responses from retailers are isolated, the figure increased by 9.2 percent, with 51.3 percent of retailers saying they would not start their business again.

"Although recent events on Wall Street have taken an economic toll on Main Street, small business owners are a resilient group," said MerchantCircle Vice President Darren Waddell. "Let's not forget that small businesses and entrepreneurs create two-thirds of all new jobs in the U.S., and though our first merchant confidence index reveals merchants expect to be challenged during the 2009 holiday season, they are largely optimistic that their businesses will survive."

General outlook is poor for the 2009 holiday season, with six in 10 merchants saying they do not expect an uptick in sales revenues during the next 90 days (November through January) over the past 90 days (August through October). Nearly seven in 10 merchants expect 2009 to rival 2008 in terms of poor sales, and 0.1 percent of small business owners expect sales revenues to decline or remain relatively the same over the next three months versus the last three months.

The majority of merchants expect employee headcount to remain flat or decline, but nearly 15 percent of small businesses expect to ramp up hiring over the next three months, which Waddell said represents a glimmer of hope for job seekers. Twelve percent expect to increase their headcount "somewhat," and 2.1 expect to increase headcount significantly over the next three months. However, 85.4 percent of merchants expect employee headcount to remain the same or decline over the next three months.

Mark Fratrik, vice president at research firm BIA Kelsey, said it's not surprising to see the apprehension of small businesses on the recovery given the breadth and magnitude of the downturn in the past year.

"Nearly half of the respondents indicated that they do not think the worst effects of the recession are behind us," he said. "Only when the unemployment rate decreases and consumers start spending will these small businesses start to become optimistic. As a result of this apprehension, these companies are generally not expecting to hire many more people in the near future, nor are they expecting to spend more in marketing or advertising."