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Center for Applied Research

Private Capital Markets Project

2011 Economic Forecast: The View from Main Street and the Middle Markets

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How do small businesses and the private capital markets that support them view the year ahead for the American economy?

The U.S. stock market ushered 2011 on a high. As the U.S. economy signaled that circumstances are stronger than expected, many economists adjusted their previously more pessimistic projections. In November the Fed announced further “quantitative easing,” buying bonds with newly created money in order to lower long-term interest rates and spur lending. December brought the extension of the Bush White House tax cuts until the end of 2012 and, through a payroll-tax cut and other measures, a move to pump another $300 billion into the economy in 2011. Wall Street reacted favorably, but the view from Main Street and the Middle Markets may see future U.S. growth in different terms.

With over 99% of companies having fewer than 500 employees, the U.S. economy is dependent upon the success of small businesses. The Pepperdine Private Capital Markets Project, under the direction of Dr. John Paglia at the Graziadio School of Business and Management, asked 1,224 privately-held businesses, capital suppliers, intermediaries, and service providers to weigh-in on an economic forecast of the next twelve months. The findings show that their perspective contrasts with their public market counterparts on important growth measures and there remains cause for caution in 2011.

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Some highlights include:

  1. Smaller privately-held companies (less than $5 million in revenue) have relatively more pessimistic views of economy as whole than their larger counterparts ($100+ million in annual revenue).
  2. Non-US based respondents have relatively more pessimistic views of US economy as whole but more optimistic views for housing and stock market.
  3. Nearly 6% (5.6%) believe we will not see 6% unemployment until after 2020; however highest concentration of responses were at year 2014 (25.0%).
  4. US monetary policy is expected to have a positive impact on GDP in next 12 months (50.6% total) while foreign monetary policy is expected to have a negative impact on GDP in next 12 months (52.8%). Raises the questions: Are we offensive or defensive to this? What should policy be?
  5. 80% of business owners feel economic stimulus measures distributed unfairly.
  6. When evaluating the worldwide landscape for expansion or investment, US respondents see the U.S. as the location with relatively better opportunities (Rank #1 with score of 3.72 followed by Canada, Brazil, and India) while non-US respondents see India as #1 (score of 3.72 followed by Brazil, China, and Canada) and the U.S. at #6 (score of 2.99). Both groups see the EU, Russia, Mexico and Japan in the bottom four. Do we have a biased optimism?