In Brief:
- Nearly 89% of Long Island businesses have five or fewer employees, making them vulnerable to inflation and rising costs.
- Restaurants face pressure from higher labor, food and energy costs, forcing many to cut staff, raise prices or close.
- Discretionary income has fallen as rent, energy and insurance costs rise faster than wages.
- Consumers are shifting spending toward discount retailers and essentials, leaving small businesses struggling to survive.
Long Island small businesses are having a tough time, and with nearly 89% of Long Island businesses having five or fewer employees, that would portend difficult times ahead for the backbone of Long Island’s economy. The signs are everywhere. Neighborhood restaurants and shopping stores are closing, and vacant storefronts in community strip malls are growing. Even the haircutter I have been going to for over 30 years—after reducing her days of operation to three days—is wondering if she can hang on.
The combination of rising labor and food costs fueled by minimum wage increases and inflation, restaurants are deciding to either raise prices, reduce menu options, operate with fewer employees, or just close for good. Other small businesses are finding it difficult competing with online sales, which have increased by 9.1%. With consumers being 70% of the economy, Long Island consumers are not only having difficulty in supporting their local businesses, but also in meeting the needs of their household budgets. When household necessities of rent, energy and food claim most of what an employee earns, there is little discretionary income to spend in local stores.
The U.S. Census and related housing market and consumer expenditure data indicate that 33% of earnings are spent for housing costs, 30% for federal and state withholding taxes, and 13% for food. The balance of 24% of earnings—or discretionary income—would be spent on property taxes, insurance and transportation, with what’s left spent in local businesses. However, this discretionary income is sure to decrease, considering the latest data indicating that rents have increased by 3.8%—the largest increase since 2011. This also includes electricity and natural gas increasing by 6.2% and 13.8%, respectively since last year. Additionally, for those who purchase health insurance on the federal marketplace, premiums are estimated to increase by 75%.
The U.S. Census is scheduled to release updated consumer expenditure data at the end of this month, and with inflation and costs outpacing wage increases, it can be expected that (at best) the 24% discretionary income will remain. However, more likely any discretionary income will decrease. Both options are not good news for struggling businesses, with any relief from consumers not appearing on the horizon.
Consumers concerned about their financial future is not new. What is new is that consumer confidence is at the lowest level since June 2023, when the economy was struggling to rebound from the pandemic. This concern has impacted spending patterns, leaving businesses playing catch up with consumers as they become more selective in their purchase choices that include seeking better value for their dollar, and goods and services reflective of their lifestyle changes.
Placer Research has found that consumers are choosing to shop at discount, dollar stores and off-priced apparel than conventional department stores. As for major, big ticket costly renovations to homes and wardrobe, consumers are favoring lower-cost wardrobe updating and refreshing home décor, while deferring larger electronics and home improvement spending. And as my haircutter is finding out: Shorter customer trips are giving way to longer visits.
Discretionary income is crucial to Long Island’s small business base, and with economic headwinds and increased everyday costs, discretionary household budgets are being squeezed, leaving consumers with little choice but to be selective in how they spend their discretionary income.
Not a welcome message to Long Island’s small business base.
Martin Cantor is director of the Long Island Center for Socio-Economic Policy and former Suffolk County economic development commissioner. He can be reached at [email protected].
Opinion
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