Is Recession the Monster, or is Inflation?


The Bureau of Economic Analysis says we had a little over half a percent growth for the first quarter of 2008. The U.S. economy is actually growing, not moving backward into negative territory. In other words, no recession.

Now I remember why I don’t pretend to be an economic expert and know whether we’re technically in a recession or not. Because even the people in the know about such things can’t agree.

Carter Wood at the Shop Floor blog is unambiguous, declaring We’re Not in a Recession. He points to the Bureau’s figures, noting: “Nothing to burst out in joyful shouts about, but the reality is: Two quarters of growth in a row do not amount to a recession.”

James Pethokoukis at U.S. News and World Report, and someone who often appears on CNBC as an economic commentator, echoes it in Dude, Where’s My Recession? James makes the pithy observation, “Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit — if only for a quarter?”

But wait, there’s more. And they don’t all agree.

Barry Ritholtz, another smart guy and someone who also appears on CNBC, looks at the same numbers and concludes Congratulations! It’s a Recession! Barry’s point seems to be that if you adjust numbers for inflation, the U.S. economy would have met the technical definition of recession.

Whether you agree with Barry’s adjustment of the recession numbers or not, he raises an important topic: inflation.

I’m seeing inflation becoming a bigger issue affecting small businesses than recession, perhaps. Inflation means that running your business costs more. What that does, of course, is put pressure on profits. Profit margins go down.

Cash flow becomes a much more immediate concern, too, because you’re paying out more. Small businesses with inflationary costs, such as for fuel, raw materials and food (3 areas hard hit by inflation) typically respond by raising their own prices as soon as they are able. But there’s always a lag time between experiencing increased costs and being able to pass those on. That squeezes cash. And in the end, having enough cash to stay in business often becomes the deciding factor during weak economic times.

What about you? Are you experiencing rising costs affecting how you run your business?



Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.