In volatile market, companies can plan for possible slowdown
As the Dow Jones Industrial Average seesaws and mostly drops by hundreds of points a day, Kathy Barnes sees the impact of the volatility on homebuilders and general contractors in the St. Louis area.
Barnes, who helps these smallbusiness owners manage their projects, says her clients are worried that the bull market that gave customers the confidence to do major work on their homes is at an end. Builders are investing in fewer properties and contractors are handling smaller-scale renovations.
“People are holding back for fear of the worst,” Barnes says. Although the overall economy and consumer spending have been strong, some small-business owners, particularly those who supply big-ticket items and services like home remodelling, are feeling the effects of volatility in stocks that has persisted for much of this year. And some small companies seeking investors are finding resistance, even from people who just a few months ago were willing to put their money down.
As of Monday, the Dow was down nearly 19 per cent from its record high of 26,828.39 reached Oct. 3 and the Standard & Poor’s 500 Index was down nearly 20 per cent since it peaked at 2,930.75 Sept. 20, but the gyrations started
back in January. Investors have been troubled by the prospect of slower economic growth in 2019, and concerns including the impact of Trump administration trade tariffs on U.S. companies. Government reports on retail sales and consumer spending show few signs that consumers are anxious, and while the Conference Board’s monthly consumer confidence index fell a little over two points to 135.7 in November, it was still near its highest point in 18 years. But many business owners remember the devastating losses stocks suffered in 2008 and their impact on consumer spending.
When consumers start feeling uneasy or less wealthy, they forgo or postpone the big discretionary items on their budgets, says Priya Raghubir, a marketing professor at New York University’s Stern School of Business.
“Large expenses such as home renovations, cars, all of those could be put on hold,” Raghubir says. Barnes’ clients are buying cheaper building materials because of homeowners’ smaller budgets.
“I’ve seen a tremendous decline when it comes to discretionary items — cabinets, flooring, things that you have some choice about,” Barnes says.
She also sees general contractors handling more of the work themselves instead of using subcontractors, a way to preserve their profit margins.