Are You Living in Fear of the Fiscal Cliff? (VIDEO)

Economists and investors have warned of an impending U.S. financial crisis at the end of this year, but others think the fears are dangerously misguided.

The fiscal cliff, slowing U.S. growth, the U.S. election, Europe and even the weather are keeping small business owners up at night. But which of these factors is having the biggest impact on their business varies. Last week, Federal Reserve Chairman Ben Bernanke sounded another warning to Congress about the so-called “fiscal cliff”— a series of tax hikes and spending cuts set to kick in Jan. 1, as part of a deal struck last summer to raise the federal debt ceiling.

If Congress fails to take action before the end of this year, economists and analysts widely think the U.S. economy could slip into another recession. So while the implications of a fiscal cliff are very real, it’s more like a “fiscal slope,”. Good policymaking takes time. If lawmakers go past the fiscal cliff by a few weeks or a month, the economy would be okay.

At California casual Italian dining chain Maria’s Italian Kitchen, owner Madelyn Alfano has cut back on promotions to focus on providing value and great service so customers keep returning.

Beezer Molten, founder of Half-Moon Outfitters in Charleston, S.C., said something is impacting his business and there’s been a slowdown but it doesn’t appear to be consumers worrying about the fiscal cliff — potentially higher taxes at the end of the year because of budget fights in Washington — or Europe’s debt crisis. Instead, Molten blames the challenges of managing his company’s inventories after the warmer winter on weaker sales.

See the complete interview below:

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TRANSCRIPT SUMMARY:

Yes. Snazzy graphic aside, talk about a fiscal cliffhanger come year end. That is what a series of tax increases and government spending cuts kick in unless congress acts. Over past weeks at cnbc, business leaders have been sending all kinds of alarm bells. What are business owners on the front lines of the economy seeing (and a look at how manufacturers are hedging their bets).

Numbers are startling when you look how much they cut back in terms of investment in their plants. They clearly are not spending as much. This data comes from paynet which tracks 20mm in small business loans totaling $1 trillion. Look at the pull back in terms of investment. 2009, clearly during the recession, growth 9%. Then it shot up in the middle 37% last year. In the first quarter, it was down to 17%. Why? Clearly what paynet is hearing back from the owners of the small manufacturers is they’re worried about growth through the rest of this year and flat out said, listen, we’re jamming on the breaks. Small manufacturers worried about the impact of fiscal cliff, cutting back on hiring and capital investment. The CEOof paynet has not seen CEO;s of small companies this worried in a long time.

When this investment expansion is starting to slow down,some of these subsectors are jamming on the breaks, it tells us all of a sudden, there is caution that wasn’t there before. Take a look at the industrial machinery index over the last three years. You can clearly see the slowdown over the last several months.That drop you saw at the end of 2011, they brought some of it back in 2012 .Look at the delinquency rate for small manufacturers. it has come down dramatically in the last six months. We’re seeing small mom and pop companies, they’ve got strong balance sheets but they’re not investing because they’re worried.

Well said. thank you very much. You heard the numbers. now, let us bring in two small business owners for a look how they’re preparing for the fiscal cliff. Madelyn owns kitchen restaurants, nine locations in southern California and the founder of adventure gear store, Half Moon Outfitters.

Madelyn, does the current fiscal cliff we’re heading toward and current environment impact you negatively or is your business chugging along as it has been the last few months?

I’m very lucky to say I’m in the restaurant industry. They’re doing quite well considering what’s out on the streets. the industry standards, looks like the restaurant industry will project $632 billion in sales at year-end 2012, about 4% of our gross domestic product. The good news for Maria’s Italian Kitchen because we are casual. We cut back on couponing, Groupon and Living Social is over for a lot of restaurants and instead giving great value and great service to our customers is bringing back the loyalty. I would say the wealthier customers, I’d think — they’re back, spending, their habits are really good. The middle income are using it more of a luxury. Our customer counts are down but our sales in most stores are up 2 to 5%.

I’ll get to the fiscal cliff in a second why we invited you both on. I have to respond to something you said about living social and Groupon. why did you stop using them? What was your complaint?

We used them once when they first came out. What’s happening is you get the coupon people in and they don’t stay. So the purpose of it is you want to bring people in, you want them to interact with your restaurant. Those that are coming in strictly come in with the coupon and you’re not seeing them. We’re just developing — doing a different strategic, working through engaging our customers through social media, facebook and our bringing back our loyal customers by sending out menus to the neighborhoods find out that’s working for us.

You name it – has it impacted half moon negatively – something has. We’re dragging a little bit, we’re down a little bit from last year. Really, it has more to do with inventory. We came out of a warm winter, cooling spring, early Easter. It’s been very hard to get inventory right. I think that’s true for big vendors down to the smallest mom and pop. that also creates a very propositional environment, which makes it hard to maintain margin. we’re getting, here in Charleston especially, we’re getting the travel at half-moon. Price is squeezed a little bit and causing us to be down 2-5% for most of our stores. Are people coming in and saying, Hey, i want to buy a t-shirt or hiking pants, but, oh my god, Greece, I can’t buy the shoes,because I’m afraid about Greece.  No, we don’t see that at all. There’s crisis fatigue out there. That doesn’t seem to be — everybody concerned about that and I definitely think it’s a drag. I think there are a lot of different drags on the economy right now from the election to cycles the past three months and Europe, of course, everybody is a little bit worried. I haven’t heard it’s like an overwhelming concern about that. It doesn’t feel to me like our consumer at half-moon is worried about a cliff pending. Things are down a bit though.

Bottom line, Madelyn, the world is not ending financially tomorrow for you either? It’s not. I have to tell you, California, you know, we are still land of opportunity. There are still hurdles, commodities, utilities are through the roof. I think those are concerns for us. I don’t think our customers worry about Europe, I think they worry day-to-day what’s happening in America and we have to get more restaurants open so we can employ more people.

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