The Stock Market Is Not the Economy
Image via Unsplash.
Last year, when COVID-19 spread to the U.S., small businesses took an immediate hit. With many being forced to close, job losses hit record levels, and communities feared for their safety. Meanwhile, on Wall Street, the stock market boomed. Our markers of a "good" and "bad" economy are flawed, and it's time we paid more attention to the issues on the ground that impact individuals and communities.
While everyday people track macro finance trends by reading The Wall Street Journal and following the stock market, they remain largely ignorant about the businesses they use every day in their own backyards. We saw this last year as communities lamented the shuttering of businesses, surprised at the fate of even the most popular local restaurants, bars, and shops.
Those who work with small businesses saw the writing on the wall the second they heard the word “pandemic,” because they knew that small businesses run on tight margins and have burdensome debt payments with weaker banking connections, alongside other financial barriers to overcome. Everyday people, while able to name the biggest companies in the world, were shocked to see the impact that COVID had on their favorite local businesses. However, we've seen that communities used this reckoning to become better informed about the local issues that impact them every day.
The stock market and GDP are both big talking points in the media and will continue to be, but they don’t actually impact our day-to-day lives. Just look at how the stock market is improving while millions are out of work or underemployed. “Good economic recovery” means nothing for main streets with shuttered businesses and families living paycheck to paycheck. However, solid local economies that protect local businesses and employ enough people to make it through tough economic times will actually have an effect on people’s daily lives. Macro trends are important to monitor, but it’s time we start leaving these issues to the experts and become more aware of what’s happening at a local level, where we can all make an impact.
Image via Flickr.
Local Business During Economic Downturns
Brick and mortar businesses can be incredibly resilient during recessions, if properly prepared. While larger firms may be impacted by global trends and supply chain interruptions, small businesses that plan ahead with proper cash management, resourcing, and funding can build a position to weather the storm.
While spending tends to decrease during recessions as individuals feel insecure about personal finances, certain industries see less of a decline due to the phenomena we like to call "affordable luxuries." When individuals feel stressed or insecure about money, they may spend less overall, but seek out the affordable treats and luxuries that help alleviate stress and provide a sense of normal. Bars and restaurants, for example, still see customers celebrating birthday parties and meeting up with friends to lighten their spirits.
When factoring in the pandemic, obviously, the role that small businesses (and brick and mortar, in particular) would play in people's lives became uncertain. In looking back, communities rallied around small businesses impressively, even while institutional aid faltered. I founded Mainvest in 2018 as a platform to help communities invest in their local businesses. 95% of Mainvest businesses have remained on track with repayments throughout 2020 and the first quarter of 2021, showing promising trends that businesses backed by community support can stay resilient.
Local Economies Versus Global Economies
The way that we think about local economies needs to be more nuanced than the way we think about the global economy. While factors impacting global economic trends are obviously important to pay attention to, people should be focusing more on factors that might uniquely affect them and the people around them. According to the U.S. Economic Development Administration (EDA), there are a few factors that can lead to a need for resilience within a local economy:
Downturns or other significant events in the national or international economy which impact demand for locally produced goods and consumer spending.
Downturns in particular industries that constitute a critical component of the region’s economic activity.
Other external shocks (a natural or man-made disaster, closure of a military base, exit of a major employer, etc.).
The U.S. EDA states that local economy resilience is made up of three primary attributes:
The ability to recover quickly from a shock.
The ability to withstand a shock.
The ability to avoid the shock altogether.
We may not be able to completely avoid the shock that local economies have been hit with, but we can help our local businesses withstand the shock and recover quickly. Economically resilient communities are not only better prepared to cope with changing circumstances, but are also able to seize the opportunities that come with change.
The National Association of Counties’ report on bolstering economic resilience highlights three main focuses on how economic development can build resilience:
1. Long-Term Planning
Historically, many communities across the USA have found themselves reliant on one or two industries, such as agriculture, manufacturing, resource extraction, or tourism, leaving them vulnerable to industry downturns or other factors.
Through long-term planning, communities can identify their current strengths and weaknesses and create a plan to the changing economic conditions and minimize the dependence on one or two industries.
Image via Unsplash.
2. Support for Targeted Entrepreneurs, Industries, and Groups
When local businesses, governments, and the community work together, they can create powerful change and build resilience. Counties across the U.S. have funded business training programs, developed business incubators, and formed collaborative partnerships across industries to enhance economic resilience, among many other initiatives.
3. Workforce Development and Education
In order to entice new employers and retain existing ones, communities are working to implement education and development within the residents of the community to link job training with job creation. With these initiatives, employers can utilize a ready labor supply—most of these programs are driven by an industry’s specific workforce needs, increasing a worker’s overall talent and value in the labor force.
Many organizations around the country are taking steps to ensure the resilience of local economies, but individuals must pay more attention to local economic trends, and this will take a paradigm shift. While it's tempting to sum up the idea of the "the economy" into "the market is up 10 points today," it's simply not the reality of our situation. Supporting local entrepreneurs and taking a mindful approach to economic development is not only better for economic growth, but can be rewarding for communities who then benefit from vibrant downtowns and well-connected business ecosystems.
All in all, using the stock market as an indicator of overall economic health is limited at best, and dangerous at worst. As we enter a state of more dramatic economic inequality, communities on the ground are left in a precarious position as they attempt to keep their local economies resilient and strong. Positive stock market trends don’t tell us much more than the fact that rich people are getting richer. Other factors like economic resilience, good employment, sustainable local economic growth, and spending are better ways to see how everyday people and communities are faring.
Nick Mathews (CEO) and his team at Mainvest are helping to rebuild the American Dream, one small business at a time. An expert in marketing and operational strategy, Nick led the team that launched Uber in Boston back in 2013. While launching Uber in new markets, both suburban and urban, he experienced firsthand local challenges around economic development. He founded Mainvest in 2018 with the goal of empowering communities to determine their own economic development, utilizing new regulations and novel investment vehicles to align incentives between local community members and small businesses. You can connect with Nick via Twitter.
Entrepreneurship makes Main Street go round, but those working in the field have to remember that building owners are entrepreneurs, too, and they should be getting a lot more attention.