Economists expect recovery for small businesses in 2002

NEW YORK -- Economists say small businesses can indeed look forward to better times in 2002 -- and might even get a sales pickup sooner than larger companies do. But the analysts are unable to agree on the timing of an upturn.

The dimmest forecasts are for a continuation of the recession into next year.

"You are probably looking to the middle of next year, into the second quarter," said Raymond Keating, chief economist with the Small Business Survival Committee, a Washington-based advocacy group.

"For at least four decades, recessions have averaged about 11 months," Keating said. "If this one did start in March (as determined by the National Bureau of Economic Research), that would take you to February."

But, he said, "we may may be in store for a longer than averge recession, considering that we were heading into recession before Sept. 11."

A more upbeat forecast came from Martin Regalia, chief economist with the U.S. Chamber of Commerce in Washington, who predicted the overall economy would grow in at an annual rate of about 1 percent during the first quarter, rising to 4 percent by the third quarter.

Moreover, because small businesses "generally run with less overhead and leaner staffs ... they actually will see benefits of the upturn sooner than some of the bigger manufacturing companies," Regalia said.

Regalia said the current recession has been milder than the last downturn 10 years ago, which means small business should recover faster. He noted that smaller companies in general have had an easier time getting credit even with tighter lending standards, and "that's one reason why we're hopeful about small business being able to respond."

Retail sales figures help

Regalia based his prediction on economic data -- particularly retail sales figures -- that were stronger than expected during October and November. "Some of the declines weren't as bad as he expected, and some of the improvement was more than we thought," he said.

When the recovery does begin, don't look for rapid growth, said William Dunkelberg, chief economist with the National Federation for Independent Business, an advocacy group based in Washington.

Growth "could be under 1 percent this quarter and certainly not much better than that in the next few quarters," Dunkelberg said. "It won't be really exciting."

But, like Regalia, Dunkelberg was encouraged by the steps many small businesses have taken to protect themseves.

"A lot of them are cleaning up their operations, so profitability could start to come back even if sales aren't very strong," he said.

Some of the economists are basing their forecasts on the passage by Congress of an economic stimulus plan.

To really help the economy, the plan needs to accelerate the tax cuts that became law earlier this year, but that don't take effect until 2006, Keating said. Under the law, the current top 39.6 percent tax rate would fall to 35 percent, with most other rates dropping by 3 percentage points.

He also called for lower capital gains taxes to motivate more business investment.

A stimulus plan also should eliminate the alternative minimum tax, accelerate depreciation rules for businesses and, as President Bush has proposed, extend unemployment benefits, said Dean Garritson, vice president for small and medium manufacturers with the National Association of Manfuacturers in Washington.