As household debt climbs, Long Island small businesses feel the fallout

Small business owners on Long Island say shoppers have been tightening their belts in recent months as new data indicates record levels of household debt for American families.

Increasing debt is part of a larger equation that has led middle- and lower-income households in particular to cut back on spending, said Steven Kent, chief economist for the Long Island Association, a nonprofit that represents Long Island's business community. 

“Higher-income people are frequenting restaurants, same as they were just a few years ago, whereas the middle- and lower-income person may not be going out to eat as often, may not be shopping as much as often, and may be focusing more on basics,” Kent said, noting that higher-income households usually have “very modest levels of debt.”

Total household debt for American families reached a record $18.59 trillion at the end of September, marking a $197 billion increase since July, according to a recent report from the Federal Reserve Bank of New York.

Rising balances for mortgages, credit cards, home equity lines of credit and student loans all contributed to the higher total, the report said.

Although New York’s debt per capita is lower than in other states, Long Islanders in particular may be feeling the impact of larger mortgages from a pricey regional housing market, Kent said, along with active student loan debt hitting credit after the end of a pandemic-era pause on collections.

And, “because people have to pay off their student debt, they may be slower to pay off their credit card debt,” he said.

The overall level of debt outlined in the report fits the “natural trend of a growing economy” and is unlikely to significantly impact holiday spending for most, said Juan Carlos Conesa, an economics professor at Stony Brook University.

Numbers surrounding student debt “seem distorted by the pandemic relief programs” and seem “to be going back to normal levels of delinquency,” he said in an email.

“What seems a bit more worrisome is the significant increase in delinquency for credit card debt over the last two years, but if anything it seems to be flattening out in the last few periods,” he added.

Beside debt, consumer behavior has been impacted by other factors like high inflation in recent years, Kent said, as households spend a higher percentage of their budgets on basic goods.

“I think all of our businesses are feeling a bit of a pinch right now because it does feel like customers are tightening their belts a bit,” said Joseph Garcia, president of the Farmingdale Chamber of Commerce and second vice president at the Nassau Council of Chambers of Commerce. “The pool of available money for consumers is smaller today than it was maybe a year or two ago, and that means you have to fight a lot harder to stand out."

Fewer splurges, more belt-tightening

More households are reporting a worse financial situation than a year ago and have lower expectations for the coming year, according to the Federal Reserve’s October consumer expectations survey released earlier this week.

While Roberta Perry hasn’t seen fewer customers at her Farmingdale skin care store, shoppers are spending less when they visit.

“Someone who would buy three jars is now buying two, someone who would buy two is now buying one,” said Perry, who has owned ScrubzBody Skin Care Products for nearly 20 years.

She’s been running sales and promotions to draw in more business and emphasized that she’s “not going anywhere,” although she’s “bracing” for the holiday season.

“Even during the Depression, everyone wanted a lipstick,” she said. “I don’t think we’re losing [customers]. They’re just spending less.”

Anna Cortesiano, owner of Salvatore’s of Elmont Pizzeria and Restaurant, said fewer customers are coming out to dinner and ordering out, even as operating costs have increased.

“We’re struggling every day to make payroll, to pay taxes, to buy food for the week,” she said. “It’s hard. No one is ordering like they used to.”

Small business owners are also part of the economy, Garcia emphasized, so if they’re making less money, they’re also spending less, and “it becomes a bit of a cycle.”

Many business owners are looking for ways to cut costs in the coming year and are “coming back to the basics” to build relationships with customers and communities, he said. The goal is to remind people: “Hey, we’re still here, and we can really use the business."

By Brianne Ledda

brianne.ledda@newsday.com@brianne_ledda

Brianne Ledda covers personal finance and affordability for Newsday. She previously covered Southold and Greenport for The Suffolk Times and is a graduate of Stony Brook University.