Another important Microsoft Small Business Summit was the presentation by Wayne Best from Visa, about the economic outlook. Here are my notes.

He used statistical data of Visa transactions (”17 out of every 100 dollars in US is put on a Visa card”) as well as outside sources.

Overall, he states that economic growth is slowing because of decline of housing prices. In most parts of the country, there is a housing adjustment. Homes are losing on average 5% in value. This lose is higher in some areas that are economically depressed.

In the past, consumers have been borrowing equity from their homes or financing new homes 100%. They used this money to pay for improvements, durable goods, vacations, etc.

With the housing prices declining, we are seeing a switch from borrowed spending to income spending. The consumers are only spending what they take home in wages.


On the upside, with a 4.5% unemployment rate (2% for colleged educated), everyone that wants to work is working (with the exception of localized unemployment due to a receding automotive industry). Bonuses are on average 15%.

These workers are spending what they take home, leaving very little in the bank. They are strapped for time and are paying more for services such as dry cleaning, restaurants, etc.

A Note about the Housing Market

Because of the decrease in home values, the construction and real estate industry is seeing a rise in unemployment. The only area that is stable is home remodeling. With two-thirds of US homes 25 years or older, this will continue to remain stable.

There are currently 4 million homes vacant or unsold. Property investors are holding on to their money waiting for the market to reach bottom. Delinquency rates are at an all time high.

Long term leases are not recommended as the market continues to decline.

Is a Recession Coming?

There is a 20% chance of a recession. It is dependent on the housing and energy market. In Energy, $60/barrel is the BEST forecast. Right now demand and supply are closely matched. Worldwide economy is going so well, all countries are increasing energy consumption.

State of Small Business (NFIB Surveys)

Small Businesses are are more optimistic due to declining energy prices and positive job marketing in the past 5 months.

Firms are expanding through increased employment and capital spending because of great employment rate. 23% have open positions and are unable to fil them.

Top three important problems of businesses continues to be taxes, cost of insurance, and quality of labor. 37% report regular borrowing. There is no evidence of cash flow problem for expanding.

Final Notes

Profits are going to be under pressure because of the tight labor market (demand for higher salaries) and ability to pass on increase of expense to consumers.

Managing cash flow balance is difficult because consumers are delaying payment; acceptance of credit cards can help with this. It is important to use accounting software to have instantaneous access to finances.

It is still a good time to expand because interest rates continue to be reasonable and the service market is increasing.

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The above information is from the presentation by Wayne Best of Visa. To view the recording of this session, go to Microsoft’s Small Business Summit, register, and look at the first day’s participants.